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Characteristics of Successful Sustainable Fishery Initiatives

Over the past six years, Wilderness Markets has assessed sustainable fisheries investment opportunities in more than fifteen different wild capture fisheries worldwide. Our specific objective is defining how to make conservation-based approaches a viable financial alternative to current wild capture fishing practices.

We have enjoyed working with numerous international and national partners on field assessments, desk reviews and systemic fishery improvement project (FIP) assessments. Much of our public work and partners can be reviewed at this link.  Fisheries assessed ranged from the United States, Mexico, Indonesia, the Dominican Republic, Grenada, Guyana, Chile, and four Caribbean-wide fisheries. Along the way, we have also reviewed a number of fisheries in Africa.

Behind these public reports are a series of financial models we created to quantify the viability of alternatives considered in different fisheries. These models move beyond the scientific and policy recommendations associated with fishery reform to account for the financial implications associated with existing or proposed measures. These models weigh the financial costs and benefits of changes in management, data collection and use, infrastructure and capacity development in the context of existing value chains and markets. 

Whereas others have ably demonstrated the potential upside associated with fisheries reform through significant economic modeling,[1]and others have documented key characteristics of FIPs,[2] we have focused on how and where the specific financial benefits may be realized in a value chain. We identify how the “upside” may be used to compensate for the costs of fisheries reform and improvement such as gear change, improved management, etc. Our focus has been on the financial implications for fishery participants, especially fishers.

Through our work and others’, the variables listed below have been identified as having a direct impact the financial viability of fisheries reform. These five variables have been examined across a range of fisheries and found to be consistent. It is important to note that these operate in the context of sustainable fishing interventions, most likely in a “parallel” model.

  • Product value 
  • Stock recovery cycle[3]
  • Infrastructure Access[4],[5]
  • Supply chain length[6], [7]
  • Organizational homogeneity and capacity[8]

These variables are focused specifically on the potential likelihood of securing the financial incentives necessary to address the costs of fisheries reform or improvements, i.e., ability to pay for conservation measures through the improved value of the fishery. These benefits may then be utilized to justify reform or directly support sustainable fishing practices.  


The priority quantitative variables that have a direct impact on the financial equation are:

Product Value 

Value refers to not only the price of the seafood, but also to the margin retained by the participant in the value chain, whether fisher, first receiver or processor. This is a combination of the price, operational capacity, input costs and volumes associated with a participant. 

Products handled by participants capable of securing comparatively high value in seafood markets were found to be more capable of absorbing the incremental costs associated with fisheries reform and conservation focused measures. Lower value products – either due to the inherent value of the stock, low volumes, operational inefficiency or poor capacity leading to low margins are less likely to be viable. The willingness of participants to engage in changes in practices such as gear change and harvest control regulations, is directly proportional to the value generated by the seafood product and realized by the participant. 

Stock Recovery Cycle

Life cycles, fecundity, biomass levels, fishing effort mortality, predation and habitat health are all critical components in defining the costs of conservation related measures. Short recovery cycles reduce the wait time to realize benefits in a fishery, capping social, political and financial costs associated with fisheries reform. 


The primary qualitative factors that influence the financial equation are:

Infrastructure Access

Domestic and global supply chains require sanitary and safe foods, therefore access to appropriate storage and transport is a significant driver of product quality and value. In seafood, this typically means access to HACCP compliant facilities able to reliably provide clean ice, cold storage and timely transportation. The absence of these factors negatively impacts value.

This variable is routinely exploited by supply chain participants (including well meaning development organizations) to attempt to integrate new products into global and domestic supply chains. Unfortunately, negative social and environmental consequences are not always considered by these participants, nor is there typically a simple mechanism for integrating or compensating fishers or others for improvement costs. 

Supply Chain Length

Supply chain length includes both the geographic distance and the number of participants “touching” a product in the supply chain. Extensive travel distances between points of harvest and market drive up costs of transportation, ice and storage, and lead to product deterioration. Each “middleman” in the supply chain adds handling and cost margins to the product. While these costs may be absorbed by the end market, long supply chains decrease the likelihood of compensating those bearing the cost of fishery reform and improvement, usually fishers. 

Organizational Homogeneity and Capacity

When considering artisanal and small scale fisheries, community cultural homogeneity has been identified as a critical component of community based fisheries management and reform efforts. Successful efforts are entirely dependent on alignment around goals[9], which is easier to achieve in geographically remote, culturally homogenous communities. Regardless of the financial upside, heterogenous community efforts close to major cities are challenging. 

At the corporate level, strong leadership and the ability to effectively respond to market signals has been well documented in value chain literature and in pilot projects we have tested.

At its base level, the presence of a functioning investable entity is a significant advantage in successfully addressing the characteristics identified above. 


Based on our review of a range of different fisheries, the above characteristics have a significant impact on the success or failure of sustainable fisheries initiatives, particularly in emerging market contexts where the financial and social implications of fisheries reform are often ignored by the conservation community.

Unless these factors are integrated into projects aimed to curb overfishing, conservation efforts are unlikely to succeed and the unsustainable status quo is likely to continue.

We welcome your comments, thoughts and views on the above.

[1]Costello C, Ovando D, Clavelle, T, Strauss, K, Hilborn, R, Melnychuk, M, Branch, T, Gaines, S, Szuwalski, C, Cabral, R, Rader, D, and Leland, A. (2016). Global fishery prospects under contrasting management regimes. Proceedings of the National Academy of Sciences.113. 201520420. 10.1073/pnas.1520420113. 

[2]https://www.ceaconsulting.com/wp-content/uploads/Global-Landscape-Review-of-FIPs-Summary.pdf

[3]http://investinvibrantoceans.org/wp-content/uploads/documents/Executive_Summary_FINAL_rev_1-15-16.pdf

[4]Anderson J, Anderson C, Chu J, Meredith J, Asche F, Sylvia G, et al. (2015) The Fishery Performance Indicators: A Management Tool for Triple Bottom Line Outcomes. PLoS ONE10(5): e0122809. https://doi.org/10.1371/journal.pone.0122809

[5]Basurto X, Bennett A, Hudson Weaver A, Rodriguez-Van Dyck S, and Aceves-Bueno J-S. 2013.

Cooperative and noncooperative strategies for small-scale fisheries’ self-governance in the globalization

era: implications for conservation. Ecology and Society. 18. 10.5751/ES-05673-180438.

[6]Ibid.

[7]Wilderness Markets. 2016. Connecting the Dots: Linking Sustainable Wild Capture Fisheries Initiatives and Impact Investors.http://www.wildernessmarkets.com/our-work/connecting-the-dots/

[8]McCay BJ, Micheli F, Ponce-Díaz G, Murray G, Shester G, Ramirez-Sanchez S, and Weisman, W. (2014). Cooperatives, concessions, and co-management on the Pacific coast of Mexico. Marine Policy,44,49–59. doi:10.1016/j.marpol.2013.08.001. 

[9]Csaky, Eva (2014) Smallholder Global Value Chain Participation: The Role of Aggregation (PhD Dissertation, Duke University)

Investing for Sustainable Fisheries Needs Funding for Capacity Building

Impact investors are ready to invest increasing amounts of impact capital in sustainable fisheries; what’s missing are  profitable businesses and organizations with the capacity to accept investment. These profitable “investible entities” aren’t emerging apace because the entrepreneurial ecosystem to develop their business capacity is lagging.

Read more

Climate Change Stresses Clownfish

Rising ocean temperatures are causing significant changes with devastating impact on the ecosystem. Worldwide, the warmer and more acidic ocean conditions in the tropics have caused mass bleaching of anemones and corals[1]. A new study published in the Proceedings of the Royal Society B supports findings from another recent study in the journal, Nature, that the bleaching of anemones has a severe impact on anemonefish, like clownfish and dire consequences for marine life in general.[2]

sea water nature ocean animal underwater swim biology fish sea animal coral coral reef invertebrate marine life clown fish reef tentacle mollusk nemo aquarium cnidaria hide toxic creature exotic hidden protection invertebrates anemones protect symbiosis underwater world meeresbewohner organism clownfish water creature anemone fish sea anemones sea anemone marine biology coral reef fish marine invertebrates pomacentridae

Clownfish in anemone. Used under Creative Commons from : https://pxhere.com/en/photo/559857

Findings

The latest study looked at the metabolic rates between fish from bleached and unbleached anemones. Even though there was no discernible difference in activity between the two groups of fish, the study found that the “[s]tandard metabolic rate of anemonefish from bleached anemones was significantly higher by 8.2% compared with that of fish residing in unbleached anemones, possibly due to increased stress levels.”[3] Reduced spawning frequency and lower fecundity are two of the negative impacts that were previously observed.

The study published in Nature in 2017 focused on the hormonal stress response and reproduction of anemonefish in bleached anemones. The 14-month monitoring study found a strong correlation between the anemone bleaching and the anemonefish’s stress response and reproductive hormones. Anemonefish in bleached anemones had a 73% decrease in fecundity compared to anemonefish in unbleached anemones. They spawned half as frequently, laid 64% fewer eggs, and experienced a significantly higher egg mortality in incubation. The authors were unable to determine why the bleaching of anemones would trigger a stress response in anemonefish. They offer the possibility that bleached anemones may provide less cover and have reduced neurotoxicity of venom which leads anemonefish to perceive a greater risk of predation. [4]

According to Beldade, Agathe, O’Donnell, & Mills (2017), there are “…[a]t least 50 species of fishes and facultative symbionts of sea anemones worldwide…as many as 12% (56/464) of coastal fish species depend directly, either for food or shelter, on organisms capable of bleaching. While the strength of such dependency varies greatly, if these species suffer even a fraction of the impact found for anemonefish, then a short-lived bleaching event could decrease the reproductive output of at least 12% of species, especially those highly dependent on corals or anemones.”

Takeaway

The two studies contribute to a growing library of research on the effects of global warming on marine life and highlights the importance of understanding how individual differences in stress responses influence a species’ chances of survival.

Why does Wilderness Markets care about anemones and anemonefish? Because our work requires us to look not only at enterprises and fishery management, but at the entire ecosystem to properly account for business risks. Learn more about us.

https://www.flickr.com/photos/60477809@N03/34860139102

Photo Credit: “q phia”; anemone fish on bleached anemone, fukui, siladen, 2017

[1] Norin, T, Mills, S. C., Crespel, A., Cortese, D., Killen, S. S., & Beldade, R. (2018). Anemone bleaching increases the metabolic demands of symbiont anemonefish [Abstract]. Proceedings of The Royal Society B. doi: 10.1098/rspb.2018.0282

[2] News Deeply. (2018). Executive Summary for April 13th. Oceans Deeply (Bleaching of Anemones Makes Life Harder for Clown Fish). Retrieved from https://www.newsdeeply.com/oceans/executive-summaries/2018/04/13.

[3] Norin, et al.

[4] Beldade, R., Blandin, A., O’Donnell, R., & Mills, S. C. (2017). Cascading effects of thermally-induced anemone bleaching on associated anemonefish hormonal stress response and reproduction. Nature Communications, 8. doi: 10.1038/s41467-017-00565-w

How to Develop Impact Investment Opportunities in Sustainable Fisheries

The Need for Sustainable Fisheries Finance

We know all the problems associated with overfishing and we know that research shows:
1) that switching to more sustainable management will lead to increased revenues and food security; and
2) the cost for doing so exceeds what can be provided through traditional development and philanthropic organization.

How do we get past the second to make the first possible? Supported by the World Bank, and with input from dozens of impact investors and fishery experts, we detail the main barriers and potential approaches to overcome them in our latest paper: Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries.

Who Should Read This Paper

This paper provides an overview for international development organizations, development finance institutions, NGOs, and the governments they work with of (i) the key concerns that impact investors may have when considering the financing of sustainable fisheries, and (ii) potential approaches for public-private partnerships to overcome these obstacles. It is intended as a primer for these actors, to understand the perspective of the commercial impact investor.

Overview

This paper explains the central challenges that keep impact investors from participating in sustainable fisheries, and is structured along four main barriers:

  1. A lack of reliable fishery data
  2. Ineffective fisheries management
  3. Unreliable infrastructure systems
  4. A paucity of investment-ready enterprises

It then proposes three models for sequencing and combining different sources of capital to overcome these obstacles:

  • Serial approach: Public and philanthropic funders first support the establishment of strong governance arrangements, improved data collection, and fishery management. Once these initiatives mitigate some of the risk associated with a fishery investment, then return-seeking investors are incentivized to finance sustainable infrastructure projects (often through public-private partnerships) and/or enterprises along the value chain, focused on outcomes that achieve a triple bottom line: social responsibility, economic value, and environmental impact.
  • Consolidated approach: Governments negotiate agreements with a single private sector entity or cooperative to delegate fishery management responsibilities. The private firm or cooperative then simultaneously invests in fishery data, management, infrastructure, and triple bottom line enterprises.
  • Parallel approach: A range of investors and other stakeholders (for example, governments, nonprofit organizations, fishing collectives) develop coordinated investments to improve fisheries data, management, infrastructure, and triple bottom line enterprises. Efforts can be separately funded, but they work in tandem and share the ultimate goal of achieving sustainable catch with an appropriately capitalized and profitable fishing sector.

Each of these sequencing models presents particular challenges and opportunities. Structuring investments to achieve triple bottom line outcomes is still a new idea within the fisheries sector. There is growing evidence from other sectors, however, including agriculture and forestry, that these types of investments are achievable. Examples include the Moringa Fund[1] and Livelihood Funds,[2] which bring together public institutions, private investors, and NGOs, using innovative investment models to simultaneously address environmental degradation, climate change, and rural poverty while helping businesses become more sustainable.

The Impetus

Attracting impact investments is critical for the future of fishery recovery and expansion—these projects cannot rely on short-term loans and grants; they need longer-term finance that is committed to sustainability and responsibility. Development organizations, NGOs, and other noncommercial actors have a critical and catalytic role to play in crowding-in impact investment for sustainable fisheries by sharing risk with the private sector, promoting policy reforms, and funding interventions (through either concessional lending, grants, and/or technical assistance) with the intention of removing the barriers to impact investment.

Read the paper: Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries

 

[1] The Moringa Fund is a EUR 84 million investment fund that targets profitable large-scale agroforestry projects with high environmental and social impact in Latin America and Sub-Saharan Africa. The fund makes equity investments of EUR 4–10 million per project and adds value through its technical skills, environmental and social expertise, and global network.

[2] The Livelihood Funds are a series of investment funds created by Danone, which brings together investors—including Schneider Electric, Crédit Agricole S. A., Michelin, Hermès, SAP, CDC Climat, La Poste, Firmenich, and Voyageurs du Monde—to invest over EUR 40 million to finance nine on-the-ground programs for mangrove restoration, agroforestry, and rural energy.

 

Governance or a Markets Approach? Both. Adopt a Parallel Approach to Fisheries Reform

In our previous posts, we’ve discussed reasons and ways for involving private capital in fisheries reform, including taking a lead firm approach. This post about the parallel approach is a direct follow-up to the three models we propose for investment sequencing; we recommend checking out that post first.

Overview

Is there only one way to make a fishery sustainable? We don’t think so. That said, we do know that there are some key areas that need support on the way to sustainability. Indeed, whether to consider a “governance” or “markets” approach to fishery sustainability is a false dichotomy. In areas where a market is present, which is most, governance and markets must be considered simultaneously and balanced for the short and long-term benefits.

The working model we’re developing adopts a parallel approach to address the challenges associated with developing countries fishery reform. In this approach, the markets, and by definition, the private sector, are key partners. The commercial relationships with harvesters developed by this model are critical to ensuring support for long term fisheries reform given the lack of representation and organization at the base of the value chain. We explain our thinking in more detail below.

Approaches to Management

Under ideal circumstances, fisheries reform would have a “serial” approach to design, implement, and enforce regulations. Scientific and economic data would be the bases for robust fisheries management. With reasonable assurance that stocks will not be overfished, value chain participants can plan investments in tandem with stock recoveries.

Serial or Parallel Approach?

Emerging market fisheries face significant social and political concerns to the serial approach. For example, legislating changes that result in reduced fishing effort to promote species and stock recovery has political and social ramifications that not all governments are prepared to address. Furthermore, the cost of enforcing such changes are likely to be higher than what is considered normal – both in monetary and social terms.

Parallel Approach

Given the desire to reform fisheries while also demonstrating the economic benefits associated with such reform, we propose that a “parallel” approach may be more appropriate in emerging markets. In this approach, different actors work in tandem to develop and implement measures to increase sustainability.

What’s are the Management Basics?

Investments to improve data and management are primary concerns for fisheries reform as these will demonstrate the success and costs of various efforts. Though species, geographies and cultural norms vary, there are some agreed-upon fishery management principals which will be informed and supported by good data. These include five parameters for:

  1. size,
  2. sex,
  3. seasons,
  4. geographies and
  5. ability to access to the fishery.

Generally, social and legal changes necessary to create and enforce these management measures increase as complexity and distance from the resource increases. The degree to which the value chain can enforce them runs in the opposite direction. That is, the value chain has the greatest potential to enforce size, sex and seasons, but their ability to enforce rules decreases for geographic restrictions and even more so for access control. Rulemaking must involve local society and governments, and their participation is particularly important for complex tasks like access and geography restrictions.

The blue swimming crab (BSC) fishery in Indonesia is a good example of a parallel approach opportunity that currently engages both the value chain and government. National government has already adopted and passed restrictions regarding size and sex. The challenge now is how best to implement and enforce these efforts.

Working Model

In our parallel approach model, value chain stakeholders in Indonesia have begun gathering data to help inform and reinforce decision-making. At the same time, the provincial government, in cooperation and communication with the local community, will set standards and provide enforcement for the five parameters. Managing seasonality, geographic limits and access restrictions are also actionable through the value chain. However, these will require a higher degree of social acceptance, enforcement and value chain adoption. Good data from working closely with cooperatives and harvesters will provide foundation for the harvest control strategies. We envision starting with the easiest strategies first, essentially moving from 1 (size) down to 5 (access control) over a period of less than four years for creation and testing of the rules. It is imperative that the local government and community create the standards to ensure the lead firm can work to establish sustainability within the fishery.

The value chain and lead firm approaches provide a valuable opportunity to implement effective enforcement needed to achieve sustainability. Value chain participants can insist on the adoption of these standards, which may then be verified based on effective data collection and using internal and external audits. The current working model also includes a proposal for the lead firm to make purchases through a preferred supplier network currently formed as a cooperative. Consequently, access to finance for value chain stakeholders will be contingent upon their compliance with the rules. Working in collaboration with local cooperatives and harvesters, the economics of this fishery are such that all participants should benefit from improved BSC size and  abundance.

Final Thoughts on the Parallel Approach

Ideally, government would provide the necessary framework and policies to implement these strategies, while providing effective enforcement as in the serial approach to reform. However, in the absence of this involvement, providing market-based opportunities to adopt these measures in a socially acceptable manner may provide a viable alternative approach, which is why the parallel approach is the most viable in many fisheries like BSC in Indonesia.

Current Paths for Sustainable Fisheries Investment

lnvestors, including impact investors, can invest in the fisheries sector through two general approaches (see figure below). The first, more traditional, approach invests in fishing or seafood supply chain businesses. Examples at the level of fishers in supply chain include funding for fishing companies or cooperatives to purchase more sustainable fishing gear (e.g., that excludes bycatch or protects ocean habitats), improve vessels, or buy cold storage equipment. Further up the supply chain are investments in processing and logistics businesses. Return on these investments stems from increased productivity and efficiency of fishing; reduced waste; increased access to markets; ; and/or higher product values.

Sus. Opps

The second approach for investors is at the resource level. For example, in some fisheries like West Coast Groundfish in the United States, investors can purchase rights to fish with the potential to sell or lease these rights for environmental, social, and/or financial benefit in the future.  Similar to purchasing equity or stock in a company, equity in the right to fish in a limited-access fishery can be bought and sold. Examples include tradable fishing licenses, effort quota (such as vessel days), and fishing quota. Return on these investments relies on fish populations maintaining or increasing in abundance in the future.

These resource-level investments in the second approach require legally enforceable rights and robust tenure systems.  As such, they currently exist almost exclusively in developed country fisheries that have robust ocean policies and strong legal systems to create, manage, and enforce ownership and transfer of fishing rights. Few of these resource-level investment opportunities exist in developing country fisheries.

Because of the open access nature of fisheries, without fisheries policy and management in place, investments in the supply chain are unlikely, in and of themselves, to improve the health of a fishery. They may reduce the impact of a participating firm or entity, but unless all firms apply the same standard, negative practices will continue to impede the recovery of a fishery.

More impactful are  well structured resource level investments intrinsically tied to the biological recovery of a fishery. Improved fishery health will likely benefit these investments and thus drive a virtuous circle of fishery improvements, leading to improved social and economic outcomes, which in turn increases the economic value of the fishery.

Stock Health

Adapted from: Inamdar, Neel, Larry Band, Miguel Jorge, and Jada Tullos Anderson. Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries. Edited by Ashley Simons. Washington, D.C.: World Bank Group, 2016.

 

What does stock health tell us about potential investments?

What’s an easy way for an investor to tell if a natural resource-based enterprise is going to be viable in three to five years? Part of that answer lies in evaluating the business and the regulatory environments in which it operates, but for natural resources in particular, the resource base trend needs to be examined; is it predicted that there will be more or less in the future, based on current extraction rates and scientific estimates of the resource level? And for conservation-focused impact investments, how can investors ensure they are not using more than the ecosystem can sustain?

In wild-capture fisheries, this translates to: “Will there be more or less of the fish to harvest in the future? Will my investment exacerbate overfishing?” Less fish to harvest means the effort level, and thus costs, will need to increase to find the remaining fish.

We’ve recently been puzzling through the easiest way for banks and impact investors to gauge the investability of fisheries enterprises, with a focus on Indonesia. Indonesia hosts some of the most biodiverse ocean ecosystems on our planet and is the world’s second largest harvester of wild capture fish. Banks and investors need quick, easily understood data that doesn’t unnecessarily burden their due diligence process but ensures they aren’t contributing to overfishing.

One tool that is already available in many fisheries is the stock assessment status, usually indicated as under- or moderately exploited, fully exploited, or over-exploited. The exploitation levels reflect scientific data on whether the fish in a fishery (the stock) are being sustainably harvested. Fully exploited indicates a stock that is thought to be fished and reproducing at nearly equal rates, i.e., the amount of fish harvested is the same as the fish being hatched and surviving to maturity. Over-exploited means harvest rates are too high, and under-exploited means they could increase rates without having a harmful effect on stocks.

Indonesia’s Ministry of Marine Affairs and Fisheries recently released the results of the National Commission on Stock Assessments (NOMOR 47/KEPMEN-KP/2016 TENTANG). The assessment provides an updated snapshot of ministry data in each fishery management area for the status of nine Indonesian fishery stocks.

Indonesia Stock Status

In addition to focusing government investments on improving the fishery health, we think the data can be useful for banks and investors. The assessment data can help investors quickly determine the potential health of the resource an enterprise relies on, helping to ensure they are not causing more fish to be used than can be replaced. The key to balancing conservation and investment entails finding new opportunities to do more, without using more.

Map of Indonesian Fishery Management Areas (WPP)

Disclaimer

The findings and conclusions in this report represent the interpretations of Wilderness Markets and do not necessarily reflect the view of expert stakeholders. This publication has been prepared solely for informational purposes, and has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Wilderness Markets does not guarantee or warrant the accuracy, reliability, adequacy, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. Charts and graphs provided herein are for illustrative purposes only. Nothing contained herein constitutes investment, legal, tax, or other advice nor is it to be relied on in making an investment or other decision. Readers are responsible for assessing the relevance and accuracy of the content of this publication. this publication should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell securities or to adopt any investment strategy.