On 13 November 2025, DFCC Bank PLC (“DFCC”), a licensed commercial bank in Sri Lanka, issued the country’s first ever Blue Bond.^[1] The instrument raised LKR 3 billion (approximately USD 10 million) to support sustainable ocean-based industries, sectors that drive economic growth while preserving aquatic ecosystems and enhancing access to clean water.^[2] For an island nation with over 1,340 kilometres of coastline and a marine jurisdiction considerably larger than its landmass, the issuance marks a significant milestone, one that signals the market’s growing appetite for instruments that marry capital mobilisation with environmental stewardship.

What Is a Blue Bond?

A blue bond is, at its core, a debt instrument issued by governments, banks, or other institutions to raise capital for marine and ocean-based projects, or more broadly, to safeguard what is commonly referred to as the “blue economy.”^[3] It functions as a sub-type of green bonds or, in wider parlance, Environmental, Social and Governance (“ESG”) bonds. The mechanics are straightforward: investors provide funds to the bond issuer, who in turn commits to paying an annual coupon throughout the bond’s term, repaying the principal upon maturity.^[4]

Blue bonds can take two principal forms. The first is the conventional use-of-proceeds model, where the capital raised is earmarked for eligible marine or coastal projects. The second involves debt-for-nature swaps, through which a developing country’s external debt is forgiven or restructured in exchange for binding commitments to local environmental conservation.[5] Since the Seychelles pioneered the first blue bond issuance in 2018, the instrument has gained considerable momentum globally, attracting both sovereign and private-sector issuers.

The CSE Regulatory Framework

DFCC’s blue bond issuance was structured in adherence to the Listing Rules published by the Colombo Stock Exchange (“CSE”). The CSE Listing Rules now formally recognise Green, Social, and Sustainable (“GSS+”) bonds and projects, prescribing rules that govern both initial issuance and continuing reporting obligations.

Rule 2.2.1(l) of the Listing Rules, under Section 2 on shares and debentures, specifically provides for the issuance of sustainable bonds. Beyond the conventional requirements applicable to any debt instrument, such as, inter alia, minimum tenure and the appointment of a trustee, the Rule requires that funds raised be utilised exclusively to finance or re-finance new and/or existing eligible sustainable projects, in accordance with internationally recognised standards. therefore,seeking to issue sustainable bonds must therefore align with the principles published by the International Capital Markets Association (“ICMA”), the European Green Bond Standards (“EUGBS”), or the Climate Bonds Initiative Standards (“CBI”).

Pre-Issuance Requirements

In September 2023, ICMA published a practitioner’s guide titled Bonds to Finance the Sustainable Blue Economy, which categorises various blue projects and sets out a clear issuance process, divided into pre-issuance and post-issuance phases.

At the pre-issuance stage, the CSE Listing Rules require that a GSS+ bond prospectus contain detailed information, including, inter alia, the list of eligible projects to which proceeds will be channelled, the justification and evaluation process for selecting those projects, and a description of the systems, procedures, and controls employed by the entity to allocate proceeds and report on its investments. Importantly, the prospectus must explain the applicable ICMA principles and guidelines, together with the Green Finance Taxonomy issued by the Central Bank of Sri Lanka (“CBSL”).

Post-Issuance and Continuing Obligations

Section 7 of the Listing Rules, which deals with continuing listing requirements, captures the post-issuance framework. A listed entity that has issued GSS+ bonds is required to publish an annual report containing qualitative performance indicators and measures on the environmental impact of the GSS+ project. This report must align with the ICMA Principles and Guidelines and, where applicable, the CBSL’s Green Finance Taxonomy. It should also detail the amounts disbursed towards eligible projects.

In addition, these entities are required to furnish the CSE with quarterly and annual financial statements, together with written reports prepared by external reviewers verifying the utilisation of proceeds and confirming compliance with the applicable ICMA principles. The emphasis on independent external verification is a notable feature of the framework, it reflects a regulatory intent to ensure that sustainable finance instruments deliver genuine environmental outcomes rather than serving as exercises in mere optics.

Looking Ahead

The formal recognition and regulation of GSS+ bonds under the CSE Listing Rules is a commendable development. It provides a structured pathway for issuers seeking to mobilise capital for projects that address environmental challenges while generating returns for investors. However, the concept of blue bonds continues to evolve at pace on the global stage, and Sri Lanka’s regulatory framework will need to keep step.

There is room, in particular, for the CSE to engage in a more granular assessment of what constitutes “blue” eligibility, and to develop sector-specific guidance that accounts for the unique ecological and economic characteristics of Sri Lanka’s marine environment. The fisheries, aquaculture, coastal tourism, and maritime transport sectors each present distinct risk profiles and conservation imperatives; a one-size-fits-all approach to blue bond eligibility is unlikely to serve any of them well.

As the market matures, the emphasis will inevitably shift from the mere existence of a regulatory framework to its efficacy in producing measurable and tangible environmental outcomes. Investors, both domestic and international, will increasingly demand credible impact reporting and robust verification mechanisms. That is the real test, and the one that will determine whether blue bonds move beyond a novel financial instrument to become a meaningful tool in the country’s broader sustainability agenda. DFCC’s issuance is a promising start, but the harder work lies ahead.

References

[1] https://www.ft.lk/front-page/DFCC-Bank-issues-Sri-Lanka-s-first-Blue-Bond/44-782395
[2] https://cdn.cse.lk/cmt/upload_report_file/371_1764143734388.pdf
[3] Clifford Chance, “Blue Bonds: Expanding to the Oceans” (November 2019)
[4] Centre for Sustainable Finance Asia, “Blue Bonds Primer” (December 2023)
[5] Norton Rose Fulbright, “Blue Bonds: Making a Splash in the Capital Markets”