Many financial institutions find it challenging to assess the risks
Currently, many financial institutions find it difficult to assess the sustainability risks of their seafood clients. This is due to a lack of transparency and the complexity of the risks associated with the industry. Where information exists, it is often regional and limited to fish species and catch methods – not broadly applicable to the companies themselves, who often are involved in the fishing, processing and trading of many different fish species globally.
Financial institutions are exposed to sustainability risks in the seafood sector
Widespread overfishing and the state of world fisheries are a risk to stable seafood production and the seafood industry at both local and global levels. Overexploitation can lead to sudden and unexpected collapses in target fish stocks, which may affect the financial performance of seafood companies or the sector as a whole, and in turn, the value of seafood portfolios.
Additionally, financial institutions are at risk of being exposed to illegal, unregulated and unreported (IUU) fishing through their seafood portfolio . The numbers are not encouraging: 20% of total catches across all fisheries are IUU, 20-30% of seafood imports to the US are illegal and €1.1 billion out of €15 billion fisheries products imported to the European Union in 2007 were IUU. IUU fishing is also increasingly being referred to as a fisheries crime, and can be underpinned by other illegal activities such as money laundering, tax evasion, drug smuggling, human trafficking, slave labour and terrorism financing. Companies associated with IUU could face reputational damage, loose their licence to operate and/or loose market share.
Financial institutions can capitalise on opportunities
At the same time, consumer awareness and demand for sustainable food products continues to grow. The Marine Stewardship Council (MSC) certification for sustainable fisheries reports that it has labelled roughly 8% of the global seafood catch, worth more than US$3 billion. Seafood companies engaged in sustainable seafood production are capitalising on these growing markets. In addition, institutional and impact investors have a growing appetite in financing seafood companies that are willing to improve their sustainability performance.