Project Title: Investment Strategies to Recover the Chilean Hake Fishery

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1 Project Title: Investment Strategies to Recover the Chilean Hake Fishery Proposers Diego Undurraga, +1(805) Gonzalo Banda-Cruz, +1(805) Latin American Fisheries Fellowship Bren School of Environmental Science and Management University of California, Santa Barbara Client: Environmental Defense Fund (EDF) Erica Cunningham, Tom Grasso, Rodrigo Oyanedel, Objectives The goal of this project is to develop, assess and make recommendations for viable solutions to overcome critical economic barriers to recovering one of Chile s principal yet notoriously troubled fisheries, the common hake (Merluccius gayi gayi). Collaborating with the Environmental Defense Fund, the more specific objectives in this goal are to: (a) introduce options for finance strategies that catalyze management reforms to enable the recovery and sustainability of the Chilean hake fishery; and (b) provide novel recommendations (for policy, investor and industry audiences) for how investment capital can be deployed to finance fisheries recoveries in other regional applications. Specifically, the project will focus on the following objectives within this goal. Please refer to the approach and deliverables sections for more detail on how this project intends to meet these objectives. Significance Chile has the eighth largest wild capture fishery in the world and accounts for approximately 4% of the world s fisheries catch [1]. Although the country has a relatively strong legal framework governing fisheries, difficulties in the enforcement and control of artisanal illegal fishing have created misaligned incentives for fishers to conserve the marine resources they rely on. An immediate need for cash flow, especially amongst vulnerable fishing communities, and the competition for common and decreasing fish stocks, leads to a race to fish that inhibits the recovery of the stock. Economic investment strategies have been proposed as a potential tool to overcome these challenges. More specifically, Bloomberg Philanthropies Vibrant Oceans has already developed and published six pilot investment strategies (blueprints) for six different fisheries in Chile, Brazil, and the Philippines. Similarly, in 2016 the Walton Family Foundation (WFF) published their Ocean Program Initiative for Chile. One of the goals of this initiative is to develop informational guides and financial strategies for one of Vibrant Ocean s investment blueprints, the so called Merluza [2] strategy. The WFF is advancing towards this goal by supporting the Environmental Defense Fund (EDF) in Chile, which has defined the common hake

2 fishery recovery as one of its two goals for the country. Finding alternative investment strategies to fund the recovery of this fishery is a crucial outcome of EDF s project. Thus, it is urgent to identify effective impact investment strategies that inject capital to assure a timely, steady, and sustainable recovery of the resource. A successful model, based on Chile s hake fishery, will provide not only an example that can be adapted to the other fisheries in the region, but it will also help to generate further interest in the impact and private investment approach to financing conservation. Background The ocean provides a significant source of food across the world, currently providing 17% of the animal protein consumed globally, and is a primary driver of economic activity for coastal communities [2]. Despite fisheries productivity and resilience, however, important stocks are currently overfished, and most projections of the status-quo scenario predict further divergence and continued collapse [3]. The loss of global economic benefits associated with this collapse are estimated to be $50 billion USD annually, when comparing the potential and actual net economic benefits from global marine fisheries [4]. In response to this situation, Chile has developed a strong regulatory framework, improved the availability of economic and stock data, and increased local scientific capacity. Still, the Undersecretary of Fisheries and Aquaculture classified the common hake fishery as collapsed in The fishing quota for 2016 was decreased to a total of 23,000 Tons, with 40% of that assigned to the artisanal fleets (approximately 9,000 tons). However, because of cash flow needs, and a lack of proper enforcement, it is estimated that artisanal fishers harvest up to four times the permitted quantity. Fortunately, stakeholder groups representing government, fisher unions, NGOs, and industry in Chile have begun to recognize the growing urgency of this environmental and socioeconomic crisis. As a result, these groups have recently begun to collaborate through integrated workgroups to deal with the problem of overexploitation. As a tool to address the crisis, several stakeholders have suggested that financial strategies using the impact investment model could fund the necessary gap between overexploited and sustainable fisheries. The concept behind these investments is to deploy private, public and/or mixed capital towards the recovery of fisheries, by placing appropriate incentives for long-term sustainability. Bio-economic models show that sustainable fisheries provide more economic benefits than overexploited ones, to a degree where capturing a fraction of future benefits can fund the recovery gap (of short term economic losses and long term increased profits), creating a solid investment opportunity. When successful, the fisheries impact investment will further attract and deploy private capital to scale and accelerate fisheries reform, while generating financial returns for the investors [2]. Clearly, development of financially sound strategies is urgently needed to fund the recovery of the hake fishery. Although impact investing has tremendous promise, it has not yet been properly tested in this context, creating a gap of uncertainty for potential investors. Fortunately, the investor community is interested in viable pathways to close this uncertainty gap between theory and implementation.

3 Available data The hake fishery in Chile has substantial and reliable fisheries information (scientific data) to support the analytical components of this project. This includes accurate information for the stock, market prices, and landings. EDF and local partners will be providing the project team -as described in client letter of supportwith the relevant information and data inputs needed to support the development of a robust bio-economic model to inform the assessment, outcomes, and impact of different investment strategies. Possible approaches To achieve the objectives defined in this proposal, we propose addressing the project s core questions by taking the following approaches: 1. What are the critical steps to successfully design and implement an impact investment strategy for the recovery of Chile s hake fishery? Synthesize, systematize, and clearly outline scientific literature and information available on design and implementation of impact investment strategies as relate to sustainable fisheries and recovery stocks. Focus should be given not only to legal steps but also to financial and biological indicators of success, as well as influential partners and drivers. The results of this literature synthesis could be best communicated using a web platform or electronic document, with the target audience to be defined (NGO s, investment community, state managers, etc.). Between 15% and 25% of the project should focus on this. 2. What specific investment strategies can be modified, adapted, or created to encourage recovery of the Hake fishery to sustainable levels? Particular attention should be given to unregulated fishing effort in the artisanal sector. Conducting site visits (conducted by project interns) with key actors in the Chilean hake fishery will be critical to acquaint the project members and advisors with the sector and their existing needs. Priority will be given to sites and organizations identified as having the most impact in trading and landing figures. Describe and evaluate the fishery s value chain using tactics from systems thinking. Develop a bio-economic model that considers stocks, fisher s income and investment performance. Identify links in the value chain where impact investment strategies could be the most successful in increasing the stock sustainability. Deliverables In addition to the official written report, policy brief, poster and oral presentation, proposed deliverables for this project in consultation with the client include: 1. A financial landscape analysis, including stakeholder analysis and value chain mapping to assess opportunities and barriers for how existing and new sources of private, public and philanthropic capital can be used to catalyze recovery of the Hake fishery. 2. Robust bio-economic assessment that considers relevant indicators for investors and fisheries stakeholders, with emphasis on a structure that can be generally informative (to regional

4 fisheries recovery) but developed specifically to the case of Chilean Hake. 3. Recommendations for viable investment strategies and pathways that can support a recovery of Chile s hake fishery. Internship A paid summer internship to support the project in Chile with EDF (and the option for a second internship to support sustainable fisheries finance work in the San Francisco EDF office) will be supported by EDF as part of the Group Project. The interns will have an opportunity to closely collaborate with fisheries and ocean teams at the Environmental Defense Fund, and serve as a critical link to the advance of the project through establishing personal interactions with the diverse stakeholders in the arena of sustainable fisheries finance and investment. References [1] Environment Program Initiative: Oceans. Chile Country Strategy (2016), The Walton Family Foundation. [2] Investing for Sustainable Global Fisheries, (2016) Report and research supported by the Bloomberg Philanthropies Vibrant Oceans Initiative, and the Rockefeller Foundation. [3] Global Fishery Prospects Under Contrasting Management Regimes, Christopher Costello et al. (2016), Proceedings of the National Academy of Sciences of the United States of America, [4] The Sunken Billions: The Economic Justification for Fisheries Reform, The International Bank for Reconstruction and Development / The World Bank. Additional Supporting Literature 1.- Sustainable Fisheries Financing Strategies. Save the Oceans Feed the World Project. (2014). Encourage Capital Ocean Prosperity Roadmap: Fisheries and Beyond The Economist Intelligence Unit, Environmental Defense Fund, the Gordon and Betty Moore Foundation, California Environmental Associates, University of California at Santa Barbara, University of Washington.

5 Contacts Bren School of Environmental Science and Management MESM 2018 Candidates Diego Undurraga Gonzalo Banda-Cruz Environmental Defense Fund Erica Cunningham Tom Grasso Rodrigo Oyanedel Faculty Christopher J. Costello, PhD LAFF Program Coordinator Jacy Brunkow External Advisor Pablo Obregon (MESM 14) Fisheries Manager Conservation International

6 January 30, 2017 Group Project Selection Committee Bren School of Environmental Science & Management 2400 Bren Hall UC Santa Barbara, CA RE: Letter of commitment and financial support for group project proposal: Developing Investment strategies to Support the Recovery of the Common Hake Fishery in Chile Dear Bren School Group Project Proposal Selection Committee, On behalf of the Environmental Defense Fund, I am pleased to submit this letter of support for the proposed Group Project proposal Developing Investment strategies to Support the Recovery of the Common Hake Fishery in Chile. We believe this project will be able to make a significant contribution towards advancing in the achievement of the recovery of the currently depleted common hake fishery in Chile. As the client of the project, we want to express our support and formally commit to assist the project in the following ways: Provide financial support for at least one full-time summer intern on the project (providing stipends of $3,000 to cover living expenses for the summer, and reimbursement of travel expenses to and from Santiago, Chile (up to $2,000 total). The internship will take place in Chile and/or at EDF s Fisheries Solution Center in San Francisco Provide financial sponsorship to support site visits with the project team, advisors, and experts in the region with the goals of introducing the team to key stakeholders, fine-tuning analytical approaches, and gaining early access to data and other necessary project inputs. Provide access to data and related technical expertise that is available from the EDF. The EDF will also consider sponsorship of project-related expenses should additional opportunities emerge, such as strategic community engagement (stakeholder workshops, etc.), supplemental site visits, and opportunities to communicate results or deliverables of the project. Please don t hesitate to contact us for further information about our support for this project. We look forward to your review of the proposal and are enthusiast about the prospect of working with the Bren School of Environmental Science and Management. Sincerely, Erica Cunningham Environmental Defense Fund