Why Banks and Insurers are Investing in US$10tn Coral Reefs

They are among the most beautiful and threatened environments on the planet.

And now leading banks and insurance firms are switching on to the investment potential of coral reefs.

The World Economic Forum says coral reefs provide ecosystem services valued at US$9.9tn annually.

It adds that they “offer an unmatched opportunity for returns – economic, social and ecological”.

So how exactly are these natural wonders potential money-makers?

In a blog written for WEF’s Annual Meeting in Davos, Karen Sack, Executive Director, Ocean Risk & Resilience Alliance, and Pradeep Kurukulasuriya, Executive Secretary, UN Capital Development Fund, explain.

The potential returns are immense

Karen and Pradeep explain that the ocean represents an “untapped frontier for climate-conscious investments”.

However, when considering climate-resilient infrastructure investments, most investors focus on the obvious: flood defences, renewable energy and drought-resistant agricultural systems.

While Karen and Pradeep say these are sensible and offer “long-term financial, social and environmental returns, coral reefs are an “investable opportunity that ticks all the right boxes”.

They add: “With demand on these biodiversity-derived ecosystem services exceeding Earth's capacity to regenerate by 56%, the potential returns are immense.

“This investment opportunity, however, is time-sensitive. If we don’t act now, we risk losing it forever.”

To illustrate this point, the world is currently experiencing its fourth mass global bleaching event, with heat stress impacting nearly 80% of reefs worldwide.

Why is coral reef investment so low?

Coral reefs support the livelihoods of one billion people, while acting as buffers against storm surges, protecting infrastructure from climate-related damage.

But Karen and Pradeep say that a “sizable funding gap is dangerously delaying global protection efforts”, adding: “A significant increase in investment is required to help preserve coral reef ecosystems.”

They point out that:

• Corals have an outsized impact and offer high returns economically and environmentally
• Public and private investment in coral reef conservation is alarmingly small
• Least Developed Countries and Small Island Developing States face significant barriers to attracting climate finance due to their risk-profiles and debt burdens.

With credit ratings dominating the global financial systems, private capital is averse to high-risk markets, meaning developing nations face serious challenges to attracting public and private capital.

The value of coral

• Coral reefs provide ecosystem services valued at US$9.9tn through fisheries, tourism and coastal protection
• They are important for food security, resilience and the blue economy
• They are home to more than 25% of marine biodiversity
• They draw millions of tourists
• They are natural pharmacies, with compounds derived from reef organisms showing promise in treating diseases such as cancer and Alzheimer’s.

Investors are cottoning on

Although the situation remains critical, the insurance industry and others are beginning to recognise the value of reefs, Karen and Pradeep say.

“The MAR Fund has developed the MesoAmerican Reef (MAR) insurance programme in collaboration with the Ocean Risk and Resilience Action Alliance (ORRAA) and WTW to support rapid recovery efforts following storm damage.

“Following Hurricane Lisa in 2022, a $175,000 pay out allowed reef response brigades in Belize to mobilise within weeks.”

They went on: “The MAR insurance programme alone now protects 10,000 hectares of coral and secures more than US$3.3bn-worth of assets in the region each year.”

They argue that the challenge lies with making climate finance work in areas where climate-resilience investments are needed most.

The UNCDF is a financing enabler and off-balance sheet de-risker, with a specific focus on high-risk, last-mile markets.

As a non-credit rated agency, it can use grants from donors to provide guarantees and innovative financing instruments that work to unlock domestic capital and create new markets, laying the groundwork for additional streams of investment.

Urgent next steps

Karen and Pradeep say it is crucial to scale efforts, with work needed to address barriers to investment.

Another good example is the Global Fund for Coral Reefs (GFCR), supported by UNCDF and ORRAA’s Sea Change Impact Financing Facility.

The pair explain: “By blending public and philanthropic funds to de-risk private investments, GFCR has demonstrated a leverage ratio of $3 for every $1 invested.

“Similarly, ORRAA’s emerging Blue Guarantee Facility should show returns of $5 for every $1 invested. This dual approach ensures both ecological and economic gains.”

Scratching the surface

Karen and Pradeep call for:

• Global expansion of reef insurance
• The development of coral bonds
• The scaling of impact investments.

They conclude: “Investing in coral reefs is not an act of philanthropy – it is a strategic business decision.

“They represent a once-in-a-lifetime investment opportunity that aligns with the metrics of forward-thinking finance: economic viability, social impact and environmental resilience.

“Solutions exist, but what we need now is leadership to scale them up – and fast.”

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