03 February 2021
Green finance moves beyond rebellion
Russell Clark, head of the trusts and private wealth team at Carey Olsen in Guernsey, reflects on Guernsey Finance's research on the relationship between private capital and sustainability for high net worth individuals and family offices.
What has happened to Extinction Rebellion? And has Greta Thunberg gone rather quiet?
They are both still around. Though at the time of writing, Extinction Rebellion’s most recent protests haven't brought central London to a halt, while Greta was last spotted commenting on the US Presidential election results.
However, arguably, their impact lives on in financial services and, indeed, it might be argued that their time has come.
Guernsey Finance commissioned research in mid-2019, when the two campaigners’ profiles were at their highest. The results indicated that we were approaching the tipping point. At the time, those high-profile protests had not yet significantly mobilised private capital into sustainable finance. Now, it seems that we have moved on. The agenda is changing.
The private wealth sector is increasingly important for attracting investment generally. Guernsey Finance's research showed that although significantly more capital was finding a home in green investments, individuals and family offices appeared to be looking for greater confidence in returns.
The research involved some 20 family offices and high-net-worth individuals, with a combined estimated worth of GBP25 billion, and 50 service providers.
It showed that more focus is needed on engagement with investment managers and investors on the aims of green and sustainable finance and the benefits of responsible investing.
Importantly, the research discovered that investors also wanted greater certainty in the green credentials of their investment. A framework for private capital in the unregulated space, analogous to the Guernsey Green Fund regulatory framework, which would provide confidence to investment managers and investors, was key to unlocking the flow of investment capital from private investors, family offices and private equity into the green and sustainable investment space.
It was clear that significantly more capital was finding a home in green investments, driven by the increased concerns of the younger generation of wealth owners. However, greater confidence in returns and in the ‘greenness’ of the underlying investment – the ‘twin confidences’ – were bothrequired to catalyse a modal shift in deployment of private capital to climate finance.
The research also showed that only half the owners of wealth surveyed were considering increasing asset allocations into green and sustainable finance, and the enthusiasm for doing so was being driven by the younger generation (under-40s).
Wealth professionals said that they felt green finance was evolving slowly – their views may well have changed in the intervening 18 months – and while it was starting to capture the imagination of the family office sector, levels of understanding on the topic remained low.
Meanwhile, owners of private wealth suggested that it would be beneficial if their advisors took the lead in driving understanding of the topic and greater responsibility for raising awareness.
"Owners of private wealth suggested that it would be beneficial if their advisors took the lead in driving understanding of the topic and greater responsibility for raising awareness."
Guernsey Finance launched the research report at a London event with Guernsey resident Stephen Lansdown, co-founder of Hargreaves Lansdown, who runs his family office business from the island and has considerable interest in green and sustainable investing and investing in Africa.
‘We have to make it easy for people to invest,’ he said. ‘The Guernsey Green Fund [a regulated green fund with certified green assets, available to all classes of Guernsey funds] is helpful in that it identifies funds and areas for investment that people can consider. At the moment you’ve got to search and investigate and it’s hard work.
‘People in the industry are going to need to develop ways of matching buyers and sellers, as this sector is going to be important and is certainly going to grow.’
An original version of this article was first published by the STEP Journal, December 2020.