The United Nations Convention on the Law of the Sea (UNCLOS), adopted in 1982 and entered into force in 1994, is a comprehensive international treaty that defines the rights and responsibilities of nations with respect to their use of the world’s oceans. It provides a legal framework for all marine and maritime activities, including navigation, overflight, exploration, exploitation of marine resources, and protection of the marine environment. UNCLOS governs zones such as the territorial sea, exclusive economic zones (EEZs), continental shelves, and the high seas, ensuring equitable and sustainable use of ocean resources while safeguarding the marine environment.
UNCLOS is highly relevant to the banking and finance industry, particularly when financing maritime-related projects such as offshore oil and gas exploration, seabed mining, port development, shipping, and coastal infrastructure. Banks involved in these sectors must consider the Convention during environmental impact assessments (EIAs) as part of their credit and investment decision-making processes. As global emphasis on environmental, social, and governance (ESG) compliance increases, financial institutions are expected to ensure that financed activities in marine and coastal zones align with international law, including UNCLOS, to mitigate legal, environmental, and reputational risks.
Several provisions of UNCLOS are particularly important for banks during environmental due diligence. Part XII of the Convention focuses on the protection and preservation of the marine environment and obligates states to prevent, reduce, and control pollution of the marine environment from various sources, including land-based activities, seabed activities, dumping, vessel discharges, and atmospheric sources. Article 206 requires states to undertake environmental impact assessments when there is a risk that planned activities under their jurisdiction or control may cause significant pollution or harm to the marine environment. This provision has direct implications for banks financing projects in or near marine zones, as it sets the standard for environmental assessment and regulatory compliance.
In the context of financing decisions, non-compliance with UNCLOS can have serious implications for banks. Projects that violate marine environmental obligations may be halted by regulatory authorities or challenged through legal action, leading to delays, increased costs, or even cancellation. Financial risks arise from exposure to fines, contract breaches, or investment losses. Reputational risks are also significant, especially if the bank is seen to support activities that degrade marine ecosystems or harm coastal communities. Legal risks may arise if the bank is associated with projects that fail to comply with national laws derived from UNCLOS obligations. Additionally, such non-compliance may limit access to international funding channels or affect the bank’s performance against sustainability-linked financial benchmarks.
To avoid these risks, banks should ensure that their EIA processes for ocean-related or coastal projects include specific assessments against UNCLOS requirements. This includes verifying whether the project falls within territorial seas, EEZs, or continental shelves, and ensuring that all marine environmental protections under Part XII are addressed. Project sponsors should be required to demonstrate regulatory compliance, conduct thorough environmental assessments in accordance with Article 206, and implement measures to avoid or mitigate harm to the marine environment. Where projects involve transboundary impacts or high seas operations, enhanced due diligence is necessary to ensure consistency with international standards.
UNCLOS provides the foundational legal structure for managing the use and protection of the world’s oceans. For banks, integrating UNCLOS-related considerations into environmental impact assessments is essential for responsible lending and investment. This not only reduces legal and reputational risks but also reinforces a bank’s commitment to sustainable development, particularly in the increasingly scrutinized area of marine and coastal finance.