Josephine Bush joined WE ARE GUERNSEY in August as Strategic Adviser for Green and Sustainable Finance. She was invited to speak in Guernsey at the Institute of Directors Annual Convention in October. Our latest blog features the highlights of her speech, in which she highlights three examples where Guernsey can play a key role...
The Dalai Lama once quoted an old African proverb: "If you think you are too small to make a difference, try sleeping with a mosquito!"
This certainly applies to Guernsey, which can play a disproportionate role to its size in the creation of climate change solutions.
I am passionate about the green sector because climate change is one of the biggest, existential threats of our time, but it also presents unprecedented opportunity. Leaders in business have the opportunity to shift the course of the inevitable climate tipping points that will follow if we move beyond a 1.5 degrees temperature rise.
Guernsey is already making its mark with the development of the green segment on The International Stock Exchange, the Guernsey Green Fund, and the ESG framework for the insurance industry. These are to name but a few of the forward thinking initiatives.
Guernsey has huge power in quickly galvanising its expert government, regulatory and financial resources around a common agenda. This is at the heart of developing systemic solutions to the climate change problem.
For finance to play its part, it needs clear market signals. So here are just three examples of where Guernsey has an opportunity to contribute:
Decision-useful frameworks to help direct capital to the right place
Guernsey can dominate this space. The development of reporting frameworks is ongoing, with the Task Force on Climate related Financial Disclosures being favoured, but he direction of travel is clear. All businesses will report on their climate impacts in time. The burden of accurately reporting on portfolio performance for insurance, banking, asset managers and other universal investors is significant, as well as for SMEs. Help is needed on accessing the right data, reporting on what is decision useful in a way that is consistent and comparable.
There is significant will to get this right, but equal dismay at what feels like the inaccessibility of the recommended approaches. Providing accessible frameworks, like the ESG insurance framework, is impactful. Further support around the type of data relevant for sectors will be key. We want this data, and the conclusions that can be drawn from it, to be commercially useful, reflecting where the business or portfolio of interests is in its lifecycle, giving information that is decision useful, value accretive and defends itself against accusations of greenwashing. Guernsey has a significant leadership role to play here, continuing on its path as first mover.
Financial innovation
We need to direct new sources of finance to climate mitigation and adaption strategies, understand the risk assessment to attract finance, and distribute its burden fairly amongst the financial participants in investments. This assessment can take place on numerous levels. At a macro level, the risk of climate impacts are increasing. Climate scenario exercises are being undertaken by the systemically important banks and others – such an exercise could alter capital adequacy requirements. With the re-weighting of portfolios to a more sustainable footing, the risk profile is altering. If this can be leveraged to free capital up we will accelerate investment into solutions further.
At a micro level, organisations that embed ESG strategies are deemed lower risk, attracting lower costs of capital, valuation premiums and higher exit multiples. Numerous studies evidence that ESG-compliant businesses will outperform the market if they embed good ESG disciplines, which in turn will attract capital. Professional service support to help businesses with the development of such strategies and reporting will deliver intangible value, financial returns and impact.
Innovative public/private finance initiatives are also required to fund much-needed investment as well as innovative structures and financial instruments. Guernsey can lead the way in providing support mechanisms for the development and marketing of new financial instruments, such as green and social bonds. It can support the delivery of finance globally through innovative structures. The key is to be in a constant state of innovation. The rich legacy of expertise in Guernsey means it can lead here with confidence.
Significant investment opportunity is emerging with the convergence of the worlds of technology and sustainability
This is the era of blockchain. It can be linked to the verification of data and traceability of assets, but also to reporting frameworks and greenwash avoidance. Additionally, the rise of crypto provides, for example, an opportunity to tokenise carbon credits, which can be marketed, offset or dividended in kind. The development of trading platforms to enable the monetisation of them outside of offsetting opportunities is on the rise. Guernsey could nurture and house the development of these future opportunities.
I invite organisations to accept the following challenges...
- Think about how will you take the next step in developing an ESG strategy and approach to reporting. If you already have one, how can it be refined and communicated more effectively to investors to deliver value?
- All business models will have to adapt to the impacts of climate change whether it is on your own operational footprint or the supply chain of which you are a part. Have you fully assessed the supply chain to identify the areas of vulnerability, or how you will engage your counter parties to adopt the good ESG disciplines you are developing?
- What new areas of innovation can you identify within your business models that require funding or insuring? Building the business case for investment and presenting its impacts will assist in the finance raise. Take a look at the increasing volume of new financial products and services being developed to assist you.
The time is right for Guernsey to leverage its rich legacy of professional services driving hard into new investable opportunity. Our future and that of the future generations depends on it.
For more information about Guernsey's finance industry please visit www.weareguernsey.com.
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