05 April 2022

The Guernsey Green Funds answer

The recent United Nations Climate Change Conference (COP-26) saw global leaders seeking to reach agreement on how to abate the risk of climate emergency. We heard that the next decade will be crucial in taking significant strides towards reductions in carbon emissions and moving away from fossil fuels, with various countries making a commitment toward striving for "net zero".

In the aftermath of COP-26, the scale of the task in hand continues to reveal itself, with the European Commission indicating at the time of writing that meeting the EU’s 2030 climate goal will require €350bn of investments every year.

In line with such concerns being firmly in global consciousness, the last decade has seen a huge growth in corporate social responsibility expectations through ESG principles and increasing investor demand for investing with a positive environmental and/or social impact. From sovereign wealth funds and large institutional investors through to individuals with modest portfolios, questions are being asked of managers and investment funds about their ESG credentials and future plans in that space.

As well as the promises of COP-26, the COVID-19 pandemic has also increased the drive towards sustainable and green finance, with a spotlight on how businesses treats their stakeholders, from employees to shareholders to wider society.

Guernsey's investment fund industry has long championed sustainable investment, and set down a marker of its intentions in 2018 when, following consultation with industry, the Guernsey Financial Services Commission ("GFSC") introduced the Guernsey Green Fund, the world’s first regulated green investment fund product.

A Guernsey Green Fund must comply with one of the specific green criteria listed based on standards developed by the joint finance group of multilateral development banks, which provide a flexible framework for entities to adopt and provide a comprehensive understanding of what encompasses climate change mitigation.  The Guernsey Green Fund has been very popular with promoters looking to enhance investor access to a trusted and transparent product that contributes to the internationally agreed objectives of mitigating environmental damage and climate change. 

Investors in a Guernsey Green Fund are able to rely on the Guernsey Green Fund designation, provided through compliance with the Guernsey Green Fund Rules, to represent a scheme that meets strict eligibility criteria of green investing and has the objective of a net positive outcome on the planet’s environment.

Guernsey Green Funds currently on the register at the GFSC include those with forestry, farmland, renewable energy, agriculture, sustainable tech and food tech investment objectives. At the end of the third quarter of 2021, registered Green Funds in Guernsey had assets in value totalling £4.65bn.  With more Green Funds in the pipeline, and existing funds having the opportunity to retrospectively apply, use of the accreditation is expected to only grow in popularity.

Hot on the heels of the Guernsey Green Fund was development of the green segment on the Guernsey headquartered International Stock Exchange - TISE GREEN (now TISE Sustainable), to enhance the visibility of those investments which make a positive environmental impact.  Then, in June 2020, Guernsey launched its first (voluntary) green private equity principles. June 2021 saw the introduction of an amended Finance Sector Code of Corporate Governance which asks Boards to consider the impact of climate change on their strategy and risk profile and, where they judge it appropriate, make climate change related disclosures.

In recent years, Carey Olsen, the leading legal adviser to Guernsey's investment funds industry, has seen several new managers launching green or sustainable focussed funds. We understand they are attracted by the strength of Guernsey's professional services, the relative speed to market, lack of bureaucracy in the formation and management of a Guernsey fund and the well-trodden routes on marketing into Europe and further afield.

As the reality of the commitments of the COP-26 begin to bite and the drive for sustainability increases at both an investor and management level, Guernsey is exceptionally well placed to support the growth of green products and increase its reputation as a leader in the space.

 

An original version of this article was first published by Business Brief, April 2022 

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