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2022/01/05

The Greening of the Blue 🌊

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There's Green to Be Made in the Changing Blue Economy

David Fessler | Engineering Strategist | The Oxford Club

Dave Fessler

The "blue economy" is going green... and it's time investors took notice.

But first, what is the blue economy?

The World Bank defines it as the "sustainable use of ocean resources for economic growth, improved livelihoods and jobs while preserving the health of ocean ecosystems."

The European Commission, in contrast, defines it as "all economic activities related to oceans, seas and coasts. It covers a wide range of interlinked established and emerging sectors."

The blue economy supports many sectors, including aquaculture, coastal tourism, fisheries, shipbuilding, port activities and maritime transportation.

One of the largest sectors in the blue economy has been oil and gas production. And sadly, waste disposal - both intentional and unintentional - has been part of the blue economy too (at least by the European Commission's definition of it). So has overfishing.

But now the blue economy is going green in many different ways.

The Greening of the Blue

The blue economy is starting to seriously take note of its environmental impact.

For example, areas that were once home to oil and gas rigs are increasingly being used as sites of offshore wind farms.

Additionally, excess energy from offshore wind can generate green hydrogen. That will power the world's newest ships.

Desalinization plants, many powered by renewable energy, will provide fresh water to irrigate arid regions. And floating solar arrays can now be found in oceans and other waters. Tidal and wave energy production are also gearing up.

But let me explain what's really driving the greening of the blue economy. Investors are increasingly focused on companies that apply environmental, social and governance (ESG) standards to their businesses.

Over the last few years, the momentum of companies adopting ESG standards has increased. As of the end of 2020, 88% of public companies and 67% of privately owned companies had adopted some form of ESG initiatives.

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Several Opportunities to Consider

The number of sectors and companies in the blue economy is so vast that the best way for investors to play it is through one or more of the exchange-traded funds (ETFs) focused on it.

Today, there are no blue economy ETFs that trade on U.S. indexes. However, there are a number of European ETFs that investors should have access to.

The first one I like is the BNP Paribas ECPI Global ESG Blue Economy ETF (France: BLUE). This ETF tracks the performance of the Global ESG Blue Economy Index, which is composed of companies involved in the blue economy.

The second is the Lyxor World Water UCITS ETF (London: WATC), an ETF that tracks the World Water CW Total Return Index. It invests in the 30 largest companies in the world that get at least 40% of their revenues from water-related activities. These include companies involved in infrastructure, utilities and water treatment.

The size of the ETF has doubled during the last three years. And as of June 2021, it was valued at 1.02 billion British pounds, or about $1.38 billion.

Some investors may be interested in individual companies with a focus on the blue economy. There are three worth considering that trade on U.S. exchanges.

The United Utilities Group PLC (OTC: UU.L) is focused on reducing water leakages by 15% and water pollution by 20%.

Xylem (NYSE: XYL) uses artificial intelligence to reduce pipe failure costs by 80%.

And finally, Essential Utilities (NYSE: WTRG) is a leader in water desalinization.

As the blue economy becomes greener, interest in these companies and others like them will only increase.

Investors might want to position their portfolios to take advantage of the changing blue economy sooner rather than later.

Good investing,

Dave

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