A Deep-Dive Into the Ocean

360 Report $CompanySectorName$ $StoryName$$ReportType$ Blue Economy Screener Thematic & Impact Investing 31 March 2017 A deep-dive into the Ocean What’s it all about? Our in-depth assessment of the decline in ocean health shows that the tides are turning. The sectors that most jeopardise the resources provided by the sea, such as shipping, wild-catch fisheries, and offshore oil & gas, face mounting pressure to shift their model towards a more sustainable Main author trajectory, which results in a new wave of risks and opportunities, paving Samuel Mary the way to a potential recovery. Our blue economy framework looks to ESG Research identify the best practices among fast-growing ocean-related industries [email protected] and likely winners and losers across our universe. Offshore-wind, +44 207 621 5190 aquaculture and ship-equipment plays are well placed to provide resource- efficient and climate-friendly solutions, while emerging themes such as ESG research team the reduction of plastic pollution are gathering steam. Biographies at the end of the report IMPORTANT. Please refer to the last page of this report for keplercheuvreux.com “Important disclosures” and analyst(s) certifications. This research is the product of Kepler Cheuvreux, which is authorised and regulated by the Autorité des Marché Financiers in France. Thematic & Impact Investing 360 in 1 minute A sea change for the ocean The swift rise of innovation-driven and renewable resource-based sectors, such as offshore wind and aquaculture, coincides with a policy clampdown on the negative environmental impact of ocean-based industries, such as seaborne trade and wild-catch fisheries. This convergence of factors bolsters the case to examine the investment opportunities and risks linked to the “blue economy”, which refers to the transition to a sustainable use of ocean, sea, and marine resources. Blue is the new green Our comprehensive mapping shows how environmental and social trends linked to the recovery of ocean health, notably resource efficiency pressure and the energy transition, could magnify the growth drivers of the most exposed companies in ocean-related sectors (fish & seafood, energy & resources, shipping lanes, coastal livelihoods). Based on our in-house blue economy framework, input from sector analysts as well as external insights (e.g. Rabobank, Carbon War Room/UCL Energy Institute, Ocean Assets Institute), we highlight the stocks at the vanguard of marine ecosystem protection and those lagging behind. Twenty thousand million euros under the sea Although still marred by biosecurity concerns, advances in aquaculture practices could foster the industry’s tremendous potential, benefitting Marine Harvest (salmon fish farming) and Benchmark (health and breeding solutions). Meanwhile, the broader sustainable seafood trend is reinforced by responsible sourcing commitments of leading food retailers (e.g. Ahold Delhaize). Tightening regulation finally implemented to reduce shipping pollution fuels the demand for solutions (e.g. marine scrubbers, ballast water), resulting in pockets of growth for leading ship equipment companies. Wärtsilä is the more obvious beneficiary. Pioneering offshore wind developers (DONG Energy) and wind equipment makers (Vestas, soon-to-be Gamesa-Siemens Wind Power, Sif) are driven by offshore double-digit growth while oil & gas companies step into the space. However, concerns remain about oil & gas deep-offshore pickup and decommissioning externalities. The next wave: plastic, eco-tourism, impact funds Innovations to counter plastic pollution, tourism’s bolder sustainability ambitions, the demand for coastal protection, and private equity impact- investing funds are all other expanding marine-related segments. 2 keplercheuvreux.com Thematic & Impact Investing Forewords We welcome the insights provided by leading responsible investment and marine industry experts in the introduction to this report. D. Michael Adams, President, Ocean Assets Institute We at Ocean Assets Institute applaud Kepler Cheuvreux’s vision in producing this timely report for responsible investors in ocean industries. I say “timely” because ocean issues have become mainstream headlines in the past year, with the crisis of plastic waste, demand for sustainable seafood, challenge of green shipping, emergence of marine energy and coastal resilience issues that - collectively - impact everyone on our Blue Planet. Yet with crisis comes opportunity. Here is a guide to help investors be part of the solution for healthy oceans, upon which all life depends. For example, take the ocean plastics crisis. There is no shortage of shocking headlines: Dumping over 8mmt per year of plastics in the ocean will lead to more plastics than fish (by weight) by 2050. This leads to vast opportunities for those who are part of the transition from a Linear to Circular Economy. From design to manufacturing, from packaging to recycling, investors can identify the winners who embrace resource efficiency and closed-loop processes. And these allocations in every industry are indeed part of the solution to a planetary crisis. Another example is the just-in-time arrival of Natural Capital Accounting for the investment community. By measuring the inputs from nature, investors can more accurately measure a company’s exposure to a host of risks: supply chains, resource scarcity, demand for sustainable products, resource efficiency, product and director liabilities. Why is this good news for the ocean? Because, as the classic example of “the tragedy of the commons”, the ocean has suffered due to the collective illusion that its services are free. Impact investors know better and are ahead of the curve to benefit from smart allocations to marine conservation. Fishing alone loses over $50bn per year due to unsustainable practices. Plastic waste can mean revenue for coastal communities with recycling projects. Tourists value clean beaches and vibrant reefs. Coastlines and cities depend on mangroves for protection against increasingly violent storms. And clean energy is offered by harnessing tides and waves. All these revenue streams add up to a bright future for Marine Impact Investing, which we support with our new initiative, BlueCapital. So we welcome this report as a practical tool for investors on the cutting edge, and thank Kepler Cheuvreux for their leadership again in delivering fine research. Ocean Assets Institute (oceanassets.org) supports healthy oceans with tools for Investor Engagement and Impact Investment. We are a Swiss-based NGO with global partners. Our team specialises in financial research, capital placement and communications. For Investor Engagement, we provide sponsored reports and events on Plastics, Seafood, Shipping and Marine Energy. For Impact Investment, we are pleased to launch BlueCapital (bluecapital.org), together with a team of experts, to source and promote investments in sustainable SMEs and marine conservation projects in Africa and Asia. Please join the Institute as a member, or get in touch to discuss how we may support your goals. 3 keplercheuvreux.com Thematic & Impact Investing Mark Campanale, Chairman of Fish Tracker and Ben Metz, Project Director The Fish Tracker Initiative aims to investigate the role that financial institutions play in financing the trade in global fisheries, in particular the exploitation of wild fish stocks or their processing for entry into the commercial food chain. Initial research has identified as many as 300 stock exchange listed fisheries businesses, many of which are focused on wild catch. Few, if any, reveal much about the sustainable management of the resource. Regionally, there are clusters of fisheries businesses listed in North American and Scandinavia as well as South Africa. The most active and by and large opaque capital market for wild catch fisheries is Asia. The initiative aims to harness the power of financial markets as a positive force for the conservation of nature. This is already being done in the energy arena, through Carbon Tracker, with this methodology now being deployed to address increasingly depleted fish stocks. Thus far, little is understood about company behaviour and where practices are linked to overfishing. From a fisheries management perspective, poor disclosure to investors of operational matters such as the health of fish stocks, permitting or quotas, volumes or species caught or geographies fished are problematic for accountability. Together, these practices are now endangering whole species. From a finance angle, these activities represent a looming supply problem and a risk to the sustainability of revenues as catch volumes rapidly decline. Fish Tracker is carefully analysing chains of custody for fish entering into the food processing chain. To date, of the 300 listed companies under analysis, their market cap is c. USD529bn. Of the initial 133 cohort of companies under detailed observation, we have discovered revenue data of USD382bn, of which transparent disclosures to market of fisheries revenue is approximately USD40bn, with fish-related revenues likely to be much greater than this. Of the initial companies under observation, less than 10% go on to disclose information about fish revenues. Very few disclose quantitative information about fish species. Fish Tracker’s goal is to stimulate change in investor behaviour and, through a more responsible approach to investing in the sector, encourage better practice. A current critical need is for more disclosure to investors of data

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