Beyond green shoots

Written by: James Tall Posted: 23/08/2021

BLCity_green illo1The Guernsey and London Green Finance Initiative was launched with great fanfare – promising to bring the two jurisdictions together to drive sustainable investing options. So how has it fared, and is it making a difference?

It’s now a full two years since the Guernsey and London Green Finance Initiative launched, marking a commitment by the two jurisdictions to further cement relationships and work together to fight climate change and accelerate green transformation.

Speaking at the Guernsey Funds Forum event in London that year, Sir Roger Gifford, Chair of the London Green Finance Initiative, who sadly passed away recently, thanked Guernsey for its contribution to finance solutions for climate change. 

This included the world’s first regulated green fund product, the Guernsey Green Fund – launched in 2018. He also stressed that finance could be a catalyst for a change in the way we live for the better. 

The stakeholders involved promised urgent and immediate action in what was heralded as a landmark agreement that would shape the relationship between the Channel Islands and the City of London for decades to come. 

Strong first steps

The agreement between the two jurisdictions quickly delivered tangible outputs. In April 2019, for example, the Bluefield Solar Income Fund achieved accreditation as a Guernsey Green Fund, becoming the first fund listed on the London Stock Exchange to do so. 

“There’s now approximately £4bn assets under management (AUM) in Guernsey green funds and it’s growing,” says Annette Alexander, Partner, Carey Olsen. 

“What this has shown us is that there’s a real appetite for robust and transparent products that can be used to channel funds into investments that help combat climate change, and at the same time give investors peace of mind in knowing their money is properly invested in climate change mitigation.”

Deloitte Director of Risk and Regulation Sally Rochester, who leads the Channel Islands’ commitment to net-zero carbon by 2030, also highlights an impressive start. 

“In Guernsey, we’ve made significant progress in the green finance agenda,” she says. “We’ve developed several world firsts, including the world’s first regulated green fund regime and the world’s first catastrophe bond, issued via a Guernsey ILS structure. 

“Our regulator has also updated our Code of Corporate Governance to include consideration of climate risk, which will encourage boards to prepare for a future in which green considerations and disclosure are likely to become an important part of international standards.

“It’s also important to point out that the theme for the Guernsey Sustainable Finance Week in June 2021, aligned with the programme for COP26, was mobilising private capital for the sustainable agenda. 

“Sir Roger Gifford had been due to speak at the event before his recent untimely passing, but his friend and colleague Claire O’Neill kindly stood in for him and delivered a touching tribute to all of his fantastic work devoted to the green finance cause.” 

BLCity_green illo2In March 2021, a thematic review of the Guernsey Green Fund regime and the release of a Spring Green Consultation Paper by the Guernsey Financial Services Commission further reinforced the island’s status as a leader in sustainable finance. 

It found the regime provides a robust and transparent product, demonstrating independent validation to current and potential investors that its objective of mitigating environmental damage results in a net-positive outcome for the environment.

Jersey is also turning up the dial when it comes to green initiatives. Mirek Gruna, Chief Commercial Officer, IQ-EQ, is well versed on the topic.

He’s working with family offices to set up family structures that have a clear focus on impact investing – that want to create a policy to invest in businesses that create stakeholder value and sustainability.

“Jersey has already implemented a clear roadmap to sustainability, introducing a sustainable finance strategy in March 2021,” he explains. 

“The strategy sets out a clear path for Jersey to be recognised as a centre of sustainable finance in the markets that it serves by 2030.

"The island’s stakeholders have realised that in order for Jersey to take the lead as a globally recognised sustainable finance centre, there needs to be a strong strategy and direction, as well as a government target for carbon neutrality.”

Navigating the pandemic 

The Covid-19 pandemic, which has lingered for far longer than initially expected, has touched every aspect of people’s lives. This includes attitudes to, and appetite for environmental, social and governance (ESG) considerations and ‘truly’ green funds.

“The pandemic seems to have increased the priority of ESG on the agenda and the space has become more active over the past 18 months,” says Danielle McIver, Vice Chair, ICSA.

“ESG has become a bit of a buzzword, but there has been increased demand in Guernsey for ESG expertise to support clients. ESG qualifications targeted towards finance professionals have recently been launched to aid this demand for expertise, such as the CISI certificate, with firms on the island electing to put their staff through such courses.”  

Alexander agrees that the pandemic has expedited the shift towards the green agenda by giving people time to pause and reflect on the magnitude of the issues we face from a climate change perspective. She adds: “There’s an imperative now not just to ‘build back better’ but to use this opportunity to build back greener too.” 

Naysayers continue to raise the spectre of ‘greenwashing’ in the funds sector, citing marketing spin to persuade the public that an organisation’s products and policies are environmentally friendly. 

“Investors are right to be concerned about greenwashing,” says Rochester. “Deloitte is working with clients to both address the risk of greenwashing and to provide assurance for those in the investment industry who want to give comfort to investors over compliance with their chosen framework.

“The reality is that investor and stakeholder expectations are evolving rapidly and what would have been seen as ‘green’ a few years ago is really being challenged by more knowledgeable investors who demand transparency and support active managers who look to challenge the board to do more to support the transition to net zero.” 

Alexander points out that one of the advantages of the Guernsey Green Fund is that it is specifically designed to prevent greenwashing. “The fund must be invested with the aim of mitigating environmental damage resulting in a net-positive outcome for the environment,” she explains. 

“The assets need to be invested 75% in accordance with the Common Principles for Climate Mitigation Finance Tracking and the other 25% must not lessen or reduce the objective of mitigating environmental damage; and it’s prohibited from being invested in certain assets, such as uranium mining for nuclear power. 

“What’s more, the investments in a Guernsey Green Fund must be independently certified – either by a third-party certifier or by the licensed and regulated fund administrator – both at the outset and on an ongoing basis to ensure that greenwashing doesn’t occur.” 

Looking to the future

The Channel Islands are building on their strong start. There are now 12 green funds in Guernsey, for example, with several more in the pipeline. 

“ESG is certainly firmly on the agenda of most fund managers that structure through Guernsey,” says McIver. 

“Guernsey has established itself as a ‘green financial centre’ by creating specific products, including the Guernsey Green Fund and the green segment of The International Stock Exchange. 

“Provision of certified products like this promote Guernsey as a jurisdiction for transparency in the green space.”  
 
The ethos behind the Guernsey and London Green Finance Initiative continues to see the two jurisdictions push the sustainability agenda forward.

Alexander points to numerous podcasts and research papers on sustainable investing, such as collaboration on the London School of Economics and Political Science (LSE) Sustainable Finance Leaderships series, a forum for leading voices to present their experience and put forward new ideas on how to accelerate progress. 

Tim Clipstone, an experienced funds, regulatory and corporate lawyer at Ogier, points to upcoming regulatory alignment that will further strengthen Guernsey’s green credentials.

“We’re seeing a constant stream of new green funds and fund-like investment structures, many of which are relying on their own credentials rather than looking for a green kite mark,” he explains. 

“However, this is likely to change when the EU’s regulations on taxonomy and sustainability-related disclosure in the financial services sector become fully operational, when the green criteria of the Guernsey Green Fund should directly align with a number of the EU’s environmental objectives – including, in particular, the objective of climate change mitigation.”

Gruna also sees encouraging signs in Jersey. “We have a number of clients actively engaged in ESG, philanthropy and impact investing,” he says. “One example is our work with one of our private clients on the creation of a network supporting women in education, empowerment and management of their own wealth. 

“As trustees, we ensure that the wealth that we look after for them provides further benefits to society.” 

The momentum is clearly building across both London and the Channel Islands, as the jurisdictions work together to become international leaders in the burgeoning green finance space.

Ones to watch

A number of fund managers and family offices are active in the ESG space across the Channel Islands. Firms to watch include:
• Earth Capital – a global private equity investment group focused on sustainable investing – its Nobel Sustainability Fund has been designated as a Guernsey Green Fund
• True North Real Estate Partners – recently launched its first fund, the Forestry Carbon Sequestration Fund
• Bluefield Solar Income Fund – an investment company focused on the acquisition and long-term management of a diversified portfolio of low-carbon assets in the UK
• Foresight Solar Fund – a Jersey investment company investing in a diversified portfolio of ground-based solar photovoltaic assets in the UK and Australia. 

 


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