What are blue and water-impact bonds?
First introduced in 2018, blue bonds are a subset of green bonds that are issued with the intent to raise funds for financing marine and ocean-based projects that aim to provide economic and environmental benefits. Blue bonds are specific to oceans, whereas water-impact bonds are a broader category which includes both marine and inland water projects.
Blue and water-impact bonds operate exactly as a conventional bond, where an investor lends capital to the beneficiary, who pays coupons and eventually the principal at the end of the bond’s term. The primary difference is the water-focused issues the proceeds of each type of bond are focused on addressing. These projects range from mangrove forest restoration, expansion of marine protected areas, improved water management, and flood risk reduction.
Blue and water-impact bonds are not necessarily cheaper than more classic bonds. Pricing is determined by the credit rating of the instrument, which is based on various factors such as the credibility of the project and beneficiary, as well as the market where the initiative is carried out.
Challenges and opportunities
Experts at the World Economic Forum identified resource shortage as the fourth-highest global risk concern over the next decade. Extreme weather events due to climate change are making water scarcer, while demand for fresh water is expected to outpace supply by 40% by 2030.
Blue and water-impact bonds have immense growth potential as a tool to help combat these climate risks. Blue bonds today are where green bonds were 10 years ago. The green bond market has seen rapid growth of more than $1 trillion in total issuance, and blue bonds are poised to see a similarly strong market (United Nations).
Although recent ESG backlash coming out of the United States will likely impact the market, the sustainable debt market has proven to be more resilient. In 2024, green bonds broke new records of issuance with $447bn and are poised to continue this growth in 2025 as net-zero investment requirements remain high despite political headwinds. In the same year, sustainable debt for proceeds focused on water was approximately $80bn, up significantly from just $1.4bn in 2023. Blue bonds represent a relatively small slice of the sustainable debt market – less than 1%, which may mean they are more vulnerable to headwinds.
Types of issuers and investors
Governments play a major role in this market, with over 50% of water-impact bonds issued by sovereigns, regional governments, local governments, and governmental agencies. These government players consist of both developed and developing nations. In 2018, the first blue bond by Seychelles raised $15 million to support marine protection and fishery management.
Source: Bloomberg. As of November 25, 2025. Due to rounding, numbers may not total to 100%.
Corporate water-impact bonds comprised approximately 38% of the market from a variety of issuers, such as banks and real estate companies. Over 50% of these issuances were denominated in euros, US dollars, and British pounds, with France, Germany, the United Kingdom, and Italy most at risk for the bonds issued.
How RPIA assesses water risk
RPIA does not currently invest in blue bonds as this market is still in its nascent stages, posing liquidity risks. We will continue to monitor developments in the sustainable bond market as this subsection continues to evolve.
Nevertheless, water-related risks are not going anywhere. RPIA assesses water risk across our portfolios using our proprietary tool, the RP Barometer, which captures quantitative metrics (e.g., current data and trends over time) and qualitative data that, together, provide insights into how an issuer develops ESG strategies and delivers improvements. This method allows us to obtain a full picture of a company’s performance across all three ESG pillars.
Water use/withdrawal intensity is one of the factors built into the RP Barometer, which can be applied to any company in any industry with publicly available data. This is especially relevant for companies and sectors that rely heavily on water, such as agriculture and artificial intelligence.
For example, the growing demand for artificial intelligence faces the unavoidable threat of water scarcity as chip fabs require millions of gallons of ultrapure water per day to cool machinery and ensure wafer sheets are free of contaminants.
Below is an RP Barometer excerpt of Company X, a US semiconductor designer and manufacturer:
1 = At the time of this report, the company’s water use/withdrawal intensity per sales ranked fourth, which is similar to the industry vs. overall. The data also shows that the company is trending negatively, as their water withdrawal rates have risen year over year.
2 = Company X and A are still in the process of building up and testing chip manufacturing capabilities, while Company B is a well-established chip manufacturer. The steep difference in use/withdrawal intensity has to do with Companies X and A being pre-revenue. This metric is therefore less concerning but will need further monitoring.
Our team also leverages new tools and technologies to measure water risk, such as Bloomberg’s water stress map to visualize an issuer’s physical risks.
At present, we will continue to consider water risks for industries and companies that are disproportionately affected. As the blue and water-impact bond market grows and matures, we will consider its risks, impacts, and returns.