Kevin Smith, Director at Estera International Fund Managers (Guernsey), takes a look at the important role Guernsey is playing in the global green investment space
On 20 September, millions of people around the world took to the streets and protested as part of a global climate strike. What turned out to be one of the largest ever demonstrations over global warming proved beyond any doubt how high climate change is on the public agenda.
Inspired largely by students around the world, the march is indicative of a major shift within society over awareness and concern for environmental, social and governance (ESG) issues. The younger generations are increasingly making their voices heard, and that is being translated into much broader areas, including where they choose to invest their money.
While there has been a significant rise in ESG investing in recent years, it has been predicted that over the next two to three decades, the millennial generation could put between $15trn and $20trn into US-domiciled ESG investments alone. This figure would roughly double the size of the current US equity market.
If that trend continues, then the figures invested by so-called Generation Z could be quite staggering.
If that huge potential is to be realised, innovative thinking is required on the part of the global funds industry. And when it comes specifically to green investment – money that goes towards supporting green and sustainable projects – Guernsey is playing a world-leading role.
Breaking new ground
When it introduced the Guernsey Green Fund rules in July 2018, the Guernsey Financial Services Commission (GFSC) created the world’s first regulated green investment product and gave both investors and managers a transparent product through which investments into green initiatives can be made.
Most importantly, it effectively created a ‘kitemark’, assuring investors that specific green criteria have been met and that their investments are having the desired, positive environmental impact.
Now that Green Funds are well into their second year, there have been some particularly notable developments that demonstrate very clearly the value that this product is offering.
In April of this year, for instance, the Bluefield Solar Income Fund achieved accreditation as a Guernsey Green Fund and became the first fund listed on London Stock Exchange (LSE) to do so.
A Guernsey-registered, closed-ended investment fund, Bluefield Solar invests in more than 80 UK-based solar assets, targeting long-life solar energy infrastructure that’s expected to generate stable renewable energy output over a 25-year asset life.
Not only did the accreditation of such a major fund help raise the profile of the innovative Guernsey Green Fund regime, but it also reinforced the fact that it’s not just new funds that are applying for Green Fund status. Significantly, Bluefield Solar was launched in 2013 and was already listed on the Main Market of LSE when it applied for Guernsey Green Fund accreditation.
While we readily admit that the number of funds accredited under the Green Fund regime is still relatively small, it was never the expectation of Guernsey’s fund industry that there was going to be an explosion in Green Fund launches. But there is a feeling among fund practitioners on the island that there is a definite growing interest.
The bigger picture
The Green Fund regime is just one part of a concerted effort to make Guernsey a centre of green investment excellence. Hot on the heels of the Guernsey Green Fund, The International Stock Exchange (TISE) launched a new market segment, TISE GREEN, which aims ‘to enhance the visibility of those investments which make a positive impact on the environment’.
Similar to the Guernsey Green Fund, any investment wishing to be admitted to TISE GREEN must meet an internationally recognised standard of green finance criteria. However, admission to TISE GREEN is open to all types of green investments, including bonds, funds and trading companies, from all jurisdictions.
And again, as with the Green Fund, TISE GREEN helps those attracting investment into environmentally beneficial initiatives to highlight their green credentials while, at the same time, providing easier access for investors who are looking to put their money into those investments.
Underpinning all of this admirable work is Guernsey Green Finance – the umbrella body for green finance in the island, which pulls together the island’s government, the GFSC and the wider finance industry. Together, their intention is to provide the broadest, most comprehensive range of green and sustainable financial services.
This not only comes from creating new products such as the Guernsey Green Fund, but also through engaging with international initiatives and partnering with fellow global finance centres.
Earlier this year, Guernsey Green Finance announced a collaboration with the UK Green Finance Initiative and also played host to Stephen Nolan, Managing Director of the International Network of Financial Centres for Sustainability (FC4S).
This is a United Nations-led programme that encourages financial centres to place sustainable and green finance at the heart of their operations and help fight climate change – Guernsey became an FC4S member at the end of last year.
And businesses on the island continue to support managers launching a range of sustainable funds – such as the Greensphere Capital launch, in June this year, which was established as a Guernsey Private Investment Fund.
Its intention is to back companies and projects that help to mitigate the biggest risks facing our generation – resource scarcity, commodity and fuel volatility, and climate stress.
More recently, in mid-September, two new offerings added to Guernsey’s green credentials. Commercial lender Sarnia Mutual launched a ‘green loan’ product, offering preferential rates for customers seeking loans for certain environmentally friendly products, such as electric cars and bikes, and household insulation.
The island also saw the launch of Environmental & Social Impact Monitor (ESIM), a not-for-profit accreditation service for island businesses, which rates businesses on environmental and social commitments.
ESIM Founder Marc Laine was reported as saying that he intended the new business to facilitate the development of a new advisory and auditing sector, which would ultimately be able to export skills to other jurisdictions.
And even as I was writing this article, the GFSC announced that its application for membership of the Network for Greening the Financial System (NGFS) had been accepted. Guernsey is the first island international finance centre to achieve NGFS membership, which was established by eight central banks and supervisors following the One Planet Summit in Paris in December 2017.
Its purpose is to help strengthen the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system in managing risks and mobilising capital for green and low-carbon investments.
The road ahead
The reality is that Guernsey has been administering clean technology and ESG funds for quite a few years, so these recent developments are simply building on the expertise in this area and should only help attract further investment.
And according to a recent study carried out by Guernsey Finance, the current political backdrop is encouraging private equity managers to consider increasing investment in green and sustainable finance.
Three-quarters of those surveyed had increased exposure in green and sustainable finance and everyone planned to do so in the near future. They said external drivers such as investor demands and competitive forces – including the ‘Attenborough Effect’, which credits the veteran broadcaster David Attenborough with making people more conscious about the impact of their consumption levels – were the main reason for doing so.
They also agreed that transparent verification and certification, such as that offered by the Guernsey Green Fund, will catalyse investor demand.
It’s clear that Guernsey is fully committed to its role as a global citizen and will use its position as a leading international finance centre to keep building on its standing in the green finance space. Indeed, Guernsey Green Finance continues to review the potential for the development of green insurance.
And while it is hoped that Guernsey’s finance industry will benefit from increased fund launches or increased investment into these green areas, the greater benefit is the overall international strategic commitment to mitigating environmental damage and climate change.
FIND OUT MORE
Estera is one of Guernsey’s leading fund administrators and has a wealth of specialist experience in renewables and administering funds with an ethical investment focus. It services multiple clients in these sectors, such as long-standing clients Bluefield Solar Income Fund and Greensphere Capital.
To find out more, please contact:
• Ethan Levner, Managing Director, Estera Guernsey
T: +44 20 7002 7606 E: ethan.levner@estera.com
• Kevin Smith, Director
T: +44 1481 742 642 E: kevin.smith@estera.com
This advertising feature was first published in the November 2019-January 2020 edition of Businesslife magazine