Blue Bonds and the Limits of Private Ordering

 Blue bonds—debt instruments whose proceeds finance projects or ventures benefitting the ocean and marine resources—are the newest members of the impact investing family. In a recent chapter we argue that their future depends not only on the volume of capital they can attract but also on a question that neither market practice nor EU law has yet answered: what happens when the promised blue impact does not materialise?

The funding gap is real. SDG 14 (life below water) is the least financed of the UN Sustainable Development Goals: as at 2019, ocean finance received USD 2.3 billion out of USD 359.4 billion in total funding, and only 2% of blended finance transactions addressed SDG 14, against 16% for climate action. Meanwhile the blue economy is expected to reach USD 3 trillion by 2030. Since the Seychelles issued the first bond labelled ‘blue’ in 2018, followed by Fiji, the World Bank and the Nordic Investment Bank, the market has grown quickly and largely invisibly: roughly a quarter of the sustainable bonds reviewed in one sample of second-party opinions turned out to benefit the marine environment without carrying a blue label.

What makes these instruments legally distinctive is not their financial structure, which is that of an ordinary bond, but the fact that the sustainable impact forms part of the bargain. Investors subscribe expecting both a financial return and a measurable ‘blue’ outcome. The stakeholder interest thereby stops being a third-party interest and becomes an element of the contractual relationship between issuer and investors.

That relationship currently rests almost entirely on private ordering. There is no dedicated legal framework for blue bonds and their design is shaped by market practice and by soft law, in particular the practitioner’s guide issued in 2023 by ICMA together with the IFC, UNEP FI, the UN Global Compact and the Asian Development Bank, which treats blue bonds as a subcategory of green bonds. Alignment with the ICMA Green Bond Principles—use of proceeds, project evaluation, management of proceeds, reporting, and a recommended external review—is now close to universal in practice, but it leaves issuers wide contractual autonomy. That flexibility has driven the market’s growth, but it also opens space for inconsistent practices and strategic use of sustainability claims. ‘Blue-washing’ risk therefore needs to be curbed, both to protect bondholders’ interest in the promised blue impact and to ensure trust in and the proper functioning of the market.

The paper identifies three main situations of ‘blue default’, in which an issuance fails to deliver its promised blue impact: the issuer may promise a benefit that is not blue at all; the proceeds may never be allocated to the project or entity identified at issuance; the issuer or—where the impact depends on a separate beneficiary—the beneficiary may fail to generate the promised impact despite having received the money.  The last scenario (allocation vs impact) is the hardest to address through private law: the multiplicity of parties typically involved—the issuer, bondholders, and, in many cases, a separate beneficiary—gives rise to diverging interests and potentially conflicting interests, thereby increasing agency costs and adverse-selection dynamics compared with those associated with traditional bonds.

Against this background, private ordering alone will not carry the market. Information asymmetries, rational investor apathy, the inherent difficulties and costs of measuring environmental impacts, and the limited incentives for investors to monitor bond issuances—particularly among retail investors—constrain the effectiveness of purely private ordering mechanisms, especially in the case of smaller corporate issuers with limited reputational capital. Further, reliance on self-regulation may generate additional transaction costs and regulatory fragmentation. These features help explain the growing importance of regulatory intervention and of initiatives such as the EU Green Bond (EuGB) Regulation. 

Although the EuGB Regulation does not mention blue bonds, the Taxonomy includes the sustainable use and protection of water and marine resources among its environmental objectives. Blue bonds can therefore be issued as EuGBs, provided they meet the Regulation’s requirements: taxonomy-aligned allocation, a pre-issuance external review, standardised allocation and impact reporting, post-issuance review, and notification to ESMA. 

The Regulation, however, is silent on the point that matters most to an investor who was promised an impact and did not get one. It builds public enforcement around ESMA and national authorities, and leaves private enforcement to national law, leaving crucial questions unanswered. Who is liable in the case of a blue default? What remedies do bondholders have? Can a bondholder claim specific performance, or only damages?

Until those questions are answered in a harmonised way, the credibility of blue bonds will rest on drafting rather than on law. Contract design must therefore do most of the work in reducing blue-washing risk: carefully drafted bond documentation can strengthen the traceability of proceeds, establish meaningful reporting obligations, introduce monitoring mechanisms, and create contractual incentives for issuers and beneficiaries to pursue the promised blue objectives. Useful as those techniques are, they remain a fragile foundation for a market that is being asked to finance the ocean.

The authors’ chapter by, ‘Impact Investing for Ocean Protection: The Case of Blue Bonds from a Legal Perspective’, published in The Palgrave Handbook of Sustainable Finance (Palgrave Macmillan 2026), is available here.

Michele Siri is Professor of Corporate Law and Financial Markets Regulation, University of Genoa; Chair of the Board of Appeal European Supervisory Authorities; Academic Member Consob Stakeholders Group; and, Director CEDIF Genoa Centre for Law and Finance.

Diletta Lenzi is Professor of Corporate Law, University of Genoa, and Member of the CEDIF Genoa Centre for Law and Finance.