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Expert Essay
Financing: Connecting Ambition with the Means to Achieve Sustainability

What finance mechanisms exist to support investment in sustainable coastal and marine tourism models and overcome key barriers to achieving scale? What else is needed?

Kathryn J Mengerink JD, PhD
Kathryn J Mengerink JD, PhD
Executive Director, Waitt Institute

Pay to play: Sustainable ocean tourism[1]

Among small-island, big-ocean nations, ocean-based tourism is a crucial economic engine. During the COVID-19 pandemic, this engine stalled, causing massive disruptions.

Small island developing states (SIDS) often have ocean areas far larger than their land masses, by a factor of 4,000 in the case of Kiribati. According the to the UN World Tourism Organization, tourism accounts for more than 20 percent of gross domestic product (GDP) in two-fifths of SIDS[2]. According to the Organisation for Economic Co-operation and Development, in 2020 the GDP of SIDS declined by 6.9 percent, compared with 4.8 percent for other developing countries[3].

As travel resumes and tourism churns back to life, many are advocating for a blue recovery[4]—one that leads to a more sustainable and healthy future for people and the planet. This includes designing sustainable tourism systems that support economies, ecosystems, and communities. With blue recovery in mind, this essay explores some ways to build ocean tourism systems so they are accountable for tourism-related damages, minimise damage to the marine environment, and enhance its health and function. Supported by appropriate finance mechanisms, these systems can yield equitable and sustainable outcomes for the ocean and for coastal communities.

The problem

Too much use can lead to abuse. What makes sustainable ocean tourism more appealing than extractive ocean industries is its ability to create jobs and build blue economies with significantly less harm to species, habitats, and the planet. However, too much ocean tourism or poorly managed systems can still degrade the resources that attract tourists.

On-reef tourism activities such as diving, snorkelling, and boating generate US$19 billion a year globally[5] and are rightfully viewed as part of the sustainable ocean tourism sector. However, the cumulative impact of even these activities can be significant.

Coral reefs are particularly sensitive to physical disruption, and activities such as diving and snorkelling can trample and break fragile coral colonies. Repeated and frequent injury may cause irreversible damage. Similarly, tourism to view charismatic megafauna such as whales and manta rays can have unintended negative consequences for those resources. Numerous studies have shown that boat traffic from whale watching can elicit behaviour changes in whales and has been linked to temporary or permanent shifts in habitat[6]. Recreational boating can lead to accidental damage from anchors dropped or dragged across sensitive habitats, collision with endangered or protected species, and/or collision with sensitive habitats.

Surfing is another sector of sustainable ocean tourism which is growing in popularity and may have unintended negative consequences if not managed properly. Recent research estimates the pre-COVID surf tourism industry to be worth between $31.5 and $64.9 billion annually[7]. When managed correctly, surf tourism can transform local economies. However, surf tourism can have deleterious effects on local communities exploited or left out of the tourism development process[8].

Even these low-impact non-extractive activities, which individually seem harmless, can have bring environmental, economic and social harms when additive and poorly managed. Combine this with activities that have individually significant impacts and the result is the potential ongoing loss of resources that serve as the basis for the tourism economy. The question, then, is how to develop the sector in a way that preserves the underlying resource.

Finance mechanisms

Address impact through fees and fines. Many destinations apply an airport fee or tax to visitor arrivals. Typically, this is priced into the airline ticket. The International Air Transport Association collects this fee and then distributes it to the destination. Fees vary widely, from $5 to well over $100. There are many arguments for and against these fees, which too often fail to support environmental management mitigation. However, if applied correctly, they are a potential source of revenue that could help pay for environmental safeguards.

Another way to address impact from human activity is to regulate access. This is often done by regulating the number of people allowed to undertake a given activity. Another approach is a fee system for use, which if fees are high enough may lead to fewer people choosing to do a certain activity. Access fees can in turn support environmental management.

On the Caribbean island of Bonaire, divers must purchase dive tag from a shop, with the revenue paying for resource management. In the British Virgin Islands, fees for use of mooring buoys, in combination with prohibitions on anchoring, support the management of marine protected areas (MPAs) in the national park system[9]. For such mechanisms, online payment systems and other e-tools can simplify the administration and reduce the operational burden.

In many developing small-island, large-ocean nations, international visitors can afford to pay higher access and use fees than local visitors and may be the primary source of income to support ocean management. The drawback of these mechanisms is that if international visitation decreases, so does the financing. These mechanisms should not be the main source of income and need to be part of a diverse financing ecosystem that supports resilience to fluctuations.

You break it, you buy it. Mitigation and natural resource damage systems are important yet under-utilised tools to address impacts from planned or accidental damage. Many nations require mitigation when developers cause planned injury to fragile resources such as wetlands and coral reefs. Such systems require those injuring the resource to mitigate their damage by either directly restoring the impacted resource or a similar resource, protecting similar habitat in another location or contributing to a mitigation fund. This approach is well-established in wetland ecosystems, including mangroves and estuaries, and has been applied in certain geographies to coral reef and seagrass environments.

Other injuries are unplanned. In these cases, a system of liability (also known as a natural resource damage system) can be important for recovering the cost of restoring the impacted resource. Similar to planned mitigation, the funds derive from those causing the damage. Such liability systems are not typically punitive but instead are designed to ensure that the resource recovers to its condition prior to the accident. Funds could support more traditional and direct restoration activities such as water quality improvement or coral restoration, or they could be used more creatively, for instance to support the cost of compliance in MPAs[10], which may have longer-term implications for restoration of an area.

These current mechanisms are an important in ensuring that those who cause the impact are accountable for the cost of that degradation.

How systems are built matters. Finance systems must be developed, designed, and supported in ways that are equitable, inclusive, and durable to achieve long-term sustainability. These systems need to be structured in ways that incentivise good behaviour and encourage protection.

Foreign investment is important to enabling tourism in many island nations. However, local businesses face tough competition from foreign-owned enterprises. A key challenge is the economic leakage that often results from foreign ownership of tourism businesses. The World Bank conservatively estimates leakage rates of 55 percent to over 80 percent for some small island developing nations[11]. Recognising this challenge, the island nation of the Maldives has expanded its tourism model from a one-island, one-resort model that is based on significant foreign investment by major resort companies to one that now includes local island tourism and supports local guesthouses and the growth of local tourism businesses. This was achieved in part by expanding investment opportunities to encourage long-stay tourism, time-share developments and potential home-shares, enticing larger investors by offering a five-year resident visa. Recent reform also created opportunities for community-based tourism projects on locally inhabited islands, with the goal of giving local communities more ownership in the industry.

A key question is how to reduce economic leakage and ensure that foreign investment supports local communities. Inclusive growth has been examined in the context of tourism to improve economic linkages and reduce leakages. Inclusive growth seeks to improve prosperity and inclusion, and achieve more equitable resource distribution, wealth and income[12]. Moving toward inclusive growth requires technical expertise, broad community and stakeholder engagement, and willingness to adapt and adjust to shifting dynamics.

Examples of local approaches that address the problem of economic leakage and create stronger local linkages, in addition to balancing foreign investment with local benefits, are rare but do exist. In the Maldives, Six Senses Laamu is a partially foreign-owned resort that has developed a Sustainability Fund to support local marine research, protection and education. The Sustainability Fund consists of 0.5 percent of total resort revenues, 50 percent of water sales, 100 percent of soft toy sales, and any guest donations[13]. In recent years, a majority of the fund’s annual expenditure supported the research, education and community projects of the Maldives Underwater Initiative (MUI). The resort is also MUI’s home base. Additionally, the resort supports local production of goods and sources local products, including buying fish from local fishers to ensure compliance with local MPA and fisheries regulations. The resort works with community groups to create jobs that support sustainability initiatives.

Another example is Misool Resort in Indonesia[14]. Misool is also a foreign-owned business with a strong focus on supporting local communities, marine protection and sustainability. With authorisation from local village leaders, the owners leased the land and surrounding waters for the resort and created a 1,204-square-kilometre fully protected MPA that is funded through the resort income. The resort’s sister organisation, the Misool Foundation, provides enforcement jobs and employs former fishers and community members as rangers to protect the MPA.

Rather than relying on good actors, governments could encourage programmes like these by establishing development priorities for sustainable projects, creating awards or endorsements, or, where budgets allow, subsidising transitions to green practices. Further, governments could look to the fees and fines discussed previously as mechanisms that feed back into these sustainability programmes. In this context, it is important for governments to establish the right sustainable finance structures to ensure that funding collected to advance blue resilience is directed at activities that accomplish such objectives.

Regional approaches for the win. A regional approach could empower small-island, large-ocean states to adopt these strategies. Such approaches would enable neighbouring nations to exercise collective power to advance positive changes to the tourism industry and thereby the environment and local economy. For instance, the Caribbean Tourism Organization, representing 32 member governments, developed a Caribbean Sustainable Tourism Policy Framework. This non-binding document provides a collective vision for policies and goals that nations are encouraged to adopt. Institutions such as the Center for Responsible Travel (CREST) have argued that the Caribbean should go further in developing a common framework to get the best value from the cruise ship industry. Such an approach would avoid a ‘race to the bottom’ in which islands try to compete in an unsustainable manner.

To achieve the label of ‘sustainable’, marine tourism should be designed to advance and support marine protection to achieve a healthy ocean that supports local communities. This requires investment in MPA management, the sustainable tourism sector and the communities that rely on the ocean.

—–

[1] Special thanks to Laura Frank, Waitt Institute Assistant Director, and Dr. Angus Friday, Waitt Institute Blue Economy Director.

[2] World Tourism Organization, “Tourism in Small Island Developing States (SIDS),” 2014, https://www.e-unwto.org/doi/pdf/10.18111/9789284416257.

[3] Organisation for Economic Co-operation and Development (OECD), “COVID-19 Pandemic: Towards a Blue Recovery in Small Island Developing States,” 26 January 2021, https://www.oecd.org/coronavirus/policy-responses/covid-19-pandemic-towards-a-blue-recovery-in-small-island-developing-states-241271b7/.”

[4] OECD, “COVID-19 Pandemic.”

[5] The Nature Conservancy, “How Tourism Can Be Good for Coral Reefs,” 25 April 2017, https://www.nature.org/en-us/what-we-do/our-insights/perspectives/how-tourism-can-be-good-for-coral-reefs/#:~:text=In%20total%2C%20coral%20reefs%20represent,wildlife%20watching%20on%20reefs%20themselves.

[6] E.C.M. Parsons, “The Negative Impacts of Whale-Watching,” Journal of Marine Biology, 2012, doi:10.1155/2012/807294.

[7] L. Mach and J. Ponting, “Establishing a Pre-COVID-19 Baseline for Surf Tourism: Trip Expenditure and Attitudes, Behaviors and Willingness to Pay for Sustainability,” Annals of Tourism Research Empirical Insight 2, no. 1 (2021), https://doi.org/10.1016/j.annale.2021.100011.

[8] J. Ponting, M. McDonald and S.L. Wearing, “Deconstructing Wonderland: Surfing Tourism in Indonesia,” Society and Leisure 28, no. 1 (2005): 141–62; D. O’Brien and J. Ponting, “Sustainable Surf Tourism: A Community Centered Approach in Papua New Guinea,” Journal of Sport Management 27 (2013): 158–72.

[9] From 2000 to 2005, mooring fees made up more than 25 percent of the revenue for the BVI National Trust, the body responsible for managing the marine protected areas of the national park system. L. Gardner, British Virgin Islands Protected Areas System Plan, 2007–2017 (Tortola: BVI National Parks Trust, 4 January 2007).

[10] U.S. Coral Reef Task Force Coral Injury and Mitigation Working Group, Handbook on Coral Reef Impacts: Avoidance, Minimization, Compensatory Mitigation, and Restoration, December 2016.

[11] M.P. Hampton and J. Jeyacheya, “Tourism-Dependent Small Islands, Inclusive Growth, and the Blue Economy,” One Earth 2, no. 1 (2020): 8–10.

[12] A. Dua, J.P. Julien, M. Kerlin, J. Law, B. McKinney, N. Noel and S. Stewart III, The Case for Inclusive Growth, McKinsey and Company, 2021.

[13] Six Senses Laamu, 2021 Annual Report, Maldives Underwater Initiative, https://www.sixsenses.com/media/13579/mui-2021-annual-report.pdf.

[14] The Economist, “Can Eco-tourism Help Save the Ocean?,” YouTube, 25 July 2018, https://www.youtube.com/watch?v=BudHTnb9G5s.

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