Lost at Sea
Investing in traceability and fostering accountability throughout supply chains could improve sustainability and profits in the seafood sector.
The overexploitation of marine biodiversity has substantial environmental and financial implications that investors should not ignore.
Investor network the FAIRR Initiative claims that US$2-3 trillion of seafood-related assets and revenue could be at risk over the next 15 years due to the damage done to oceans through excessive fishing – highlighting a critical need for companies and their shareholders to better understand their impacts and mitigate their exposure.
Together, unsustainable fishing practices, weak governance and regulation, and harmful subsidies produce an explosive cocktail that takes a huge toll on ocean life, with disastrous consequences for marine ecosystems and the communities that depend on them.
The UN’s Food and Agriculture Organization (FAO) says the percentage of stocks fished at unsustainable levels has sharply increased since the mid-1970s – from 10% in 1974 to 37.7% in 2021. It also estimates that one in five fish is caught illegally, unreported or unregulated.
“About three billion people rely on fish as a source of food, and over 600 million people work in this domain, which suggests considerable economic and social consequences,” says André Ranchin, Investment Consultant and Biodiversity Lead at Hymans Robertson. “We often talk about land desertification and the impact that has on the climate, but overfishing has similar implications.”
While about one-third of the world’s fish stocks are currently overexploited, some regions exhibit higher levels of overfishing. These include the Southeast Pacific and the Mediterranean and Black Seas, where around two-thirds of fish stocks are at biologically unsustainable levels.
“The scale of global fishing is industrial, and is a direct function of a desire for efficiency and speed,” Ranchin adds. “If similar practices occurred in any other industry, people would be shocked. There’s no way this could happen on land.”
Marine biodiversity activists often deplore the invisibility of fishing-related issues compared to other environmental causes.
“The relative lack of footage and photos documenting harmful fishing practices means the problem doesn’t resonate with the vast majority of people,” argues Tanya Cox, Biodiversity and Nature Manager at global sustainability advisory firm Chronos Sustainability. “This is where the challenge lies.”
Though some campaigns showing how ‘charismatic megafauna’ – such as dolphins and whales – is caught as bycatch in industrial trawl nets have helped to gain traction, this is far from being enough, Cox argues.
“Oceans, in general, don’t get enough attention,” echoes Tara Zeynep Baris, Product and Data Science Lead at HUB Ocean, a non-profit collating data to improve ocean health and sustainability. “Alongside climate change and pollution, overfishing is one of the biggest threats to our oceans – yet the majority of the population is unaware of its meaning and implications.”
Zeynep Baris argues that the best way to increase awareness around the issue, especially among investors, is to show how it affects profit. “If stocks are overfished, you can’t just replace them. It’s about showing the difference between short- and long-term gains,” she says.
Although in the short-term, unsustainable fishing may generate higher returns due to the lack of restrictions and lower upfront costs, in the long run, the collapse of fish stocks erodes profitability.
As such, sustainable fishing practices are more beneficial for investors seeking long-term returns.
“We are effectively losing our fish, and getting less profitable along the way,” says Ranchin. “Look at it from the outside, it’s difficult to understand how we got to this place and why the industry operates the way it does.”
Obstacles along the way
A key impediment to improving marine sustainability is the lack of oversight over waters that fall outside of countries’ jurisdiction and aren’t regulated. These are known as the high seas.
“The lack of enforceability beyond national borders is a major problem in the fight against illegal, unreported and unregulated (IUU) fishing,” says Michael Horvath, Sustainability and Sustainable Finance Leader at PwC Luxembourg. “Strengthening both regulatory frameworks and market-based incentives is essential to closing the enforcement gap in IUU fishing – as are increased international cooperation and strong global agreements.”
An example of market-based incentives is individual transferable quotas (ITQs) – also known as catch shares – which can be bought, sold or leased, creating a market for fishing rights. Thw system allocates a specific portion of the total allowable catch (TAC) of a fishery to individual fishers or companies.
Alongside the use of advanced technology, such as satellite monitoring, growing pressure from investors and consumers for enhanced sustainable practices and transparency can also drive better accountability – particularly in the high seas, Horvath argues.
Adopted by the UN General Assembly in 2023, the High Seas Treaty targets this grey area, promoting the conservation and sustainable use of marine biodiversity in unregulated zones. Having entered a ratification phase on 15 January, the treaty will come into force after 60 countries have ratified it. So far, only 15 countries have done so.
The High Seas Alliance and other organisations are advocating for expedited ratification, aiming for it to be completed before the third UN Ocean Conference in June. They say this timeline is crucial to meet international targets, including the commitment to protect 30% of the world’s oceans and freshwaters by 2030 under the Kunming-Montreal Global Biodiversity Framework – known as 30×30.
State subsidies are also playing a key role in amplifying the damage being done to marine biodiversity. While some aim to support sustainable practices and improve the livelihoods of fishing communities, the majority contribute to overfishing and environmental degradation.
As of 2018, the largest providers of such subsidies globally were China (21%) with US$7.4 billion, the EU (11%) with US$3.9 billion, the US (10%) with US$3.5 billion, South Korea (9%) with US$3.2 billion, and Japan (4%) with US$1.4 billion. Approximately US$22.2 billion of the total US$35.4 billion in global fisheries subsidies in 2018 were capacity-enhancing – which contributes to overfishing.
“The root of the problem is that it’s very hard to understand what goes on in ships, especially with fleets that are coming from China,” says Zeynep Baris. “A lot of companies that purchase the fish don’t really know where it’s coming from and have trouble properly measuring the impact of their activities, because the whole value chain is not properly understood.”
In force since July last year, the Corporate Sustainability Due Diligence Directive is looking to address shortcomings in product traceability, with goals to enhance corporate responsibility for environmental harms throughout the entire value chain.
Separately, the World Trade Organization has been actively targeting harmful subsidies. In 2022, it adopted the Agreement on Fisheries Subsidies, marking a significant step towards SDG 14.6 – to prohibit subsidies that contribute to overcapacity, overfishing, and IUU fishing.
“Once fully enforced, stricter policy actions could lead to a number of undesirable effects – ranging from regulatory penalties, reputational damage and supply-chain disruptions for companies that fail to comply,” says Horvath. “For investors, different risks can be associated with direct or indirect investment exposure to such firms. These can include sustainability risks related to transition requirements, which can then manifest into financial risk as future earnings may be limited by new restrictions.”
Being aware of investee companies’ entire value chain, aligning with their sustainability practices, and ensuring compliance, will be key for investors seeking to identify, mitigate and sidestep such risks.
“This is where the Corporate Sustainability Reporting Directive comes in very handy for investors and asset managers alike, as it requires in-scope companies to understand and disclose all material sustainability matters – including those related to marine ecosystems – relating to their own operations, but also throughout upstream and downstream value chains,” Horvath adds.
Spotting a good catch
As dire as it may be, the state of play of marine biodiversity presents interesting opportunities for investors to seize.
“To get anywhere near the 30×30 goals, there needs to be a significant shift – some of which will come through innovation that requires investment,” Ranchin argues. “For instance, ongoing research is examining how to reduce bycatch and better estimate catch size using AI for net technology. There’s potential to invest in this type of projects.”
Though fishing-focused investor engagement has been limited to date, some efforts are beginning to materialise. A notable achievement is the Seafood Traceability Engagement, devised by FAIRR with support from the World Wildlife Fund (WWF-US), Planet Tracker, the World Benchmarking Alliance and UNEP FI’s Sustainable Blue Economy Finance Initiative.
The engagement focuses on seven of the largest global seafood companies, encouraging them to recognise the lack of traceability as a material risk and commit to full-chain, digital and interoperable traceability. The first phase took place across 2023-24, supported by 35 investors representing US$6.5 trillion in combined assets.
“We know that overfishing is a financial risk, but we don’t know to what extent for each company. For that, you need to be able to trace where the fish comes from,” argues François Mosnier, Head of Planet Tracker’s ocean programme. “Quite a few large investors are targeting these seafood companies specifically. The engagement should help them gain a better view of product traceability and address associated risks more efficiently – leading to better investment decisions.”
According to Planet Tracker, enhanced traceability in the seafood sector could boost profits by 60%, with an investment as small as 1% of global sales able to boost the valuation of supply-chain companies by US$600 billion.
“Full-chain traceability would also unlock a huge amount of opportunity, enabling seafood companies to validate sustainability claims and satisfy growing demand, while also increasing operational efficiency with more and better data,” the think tank adds.
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