Kevin Smith, Director, takes a look at the important role Guernsey is playing in the global green investment space.
Climate change and sustainability are now staple issues in public discourse, and with the United Nations' Climate Change Conference (COP26) having just taken place, environmental awareness is at an all-time high.
Environmental, social and governance (ESG) investing has been catapulted into the mainstream, with Bloomberg predicting that global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total AUM.
If that potential is to be realised, it requires innovative thinking 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 (GGF) rules in July 2018, the Guernsey Financial Services Commission (GFSC) created the world's first regulated green investment product. It provides investors and managers with 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.
For example, in April 2019, the Bluefield Solar Income Fund became the first fund listed on the London Stock Exchange (LSE) to achieve accreditation as a GGF. A Guernsey-registered, closed-ended investment fund, Bluefield Solar invests in more than 100 UK-based solar and renewable assets, targeting long-life solar energy, onshore wind, hydro and storage infrastructure that's expected to generate stable renewable energy output over a 25-year asset life.
The bigger picture
The GGF regime is just one part of a concerted effort to make Guernsey a centre of green investment excellence.
Earlier this year, the GFSC updated its Guernsey Finance Sector Code of Corporate Governance, making it a requirement for all Guernsey companies to consider the impact of climate change on their strategies and risk profile and where appropriate, disclose climate change related information.
Amongst other initiatives has been the successful launch of a new market segment on The International Stock Exchange (TISE), TISE Sustainable. This follows Guernsey's participation in the UN's Sustainable Stock Exchanges initiative, a partnership programme designed to provide a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators, and policymakers, can encourage sustainable investment.
The launch of TISE Sustainable represents an evolution from TISE GREEN, and it is intended to enhance the visibility of, and increase capital allocation to investments that have a positive impact on the environment and/or social activities. Admission to these market segments is open to all types of green investments, including bonds, funds and trading companies, from all jurisdictions. Similar to the GGF, any investment wishing to be admitted must meet internationally recognised green finance criteria.
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 GGF, but also through engaging with international initiatives and partnering with fellow global finance centres. In June 2021 it partnered with the UN's Finance Centres for Sustainability to host its second annual Sustainable Finance Week. The event brings together global policy makers and professionals from across the sustainable finance and private wealth sectors to discuss how private capital can finance sustainability projects, with a reported $30 trillion in private wealth poised to be harnessed to deliver the goals of the Paris Climate Agreement.
The road ahead
The reality is that Guernsey has been administering clean technology and ESG type investments and funds for many years, so these recent developments are simply building on the expertise in this area and should only help to attract further investment.
Meanwhile, the current political backdrop and changing investor preferences are encouraging fund managers to consider more investment in green and sustainable finance. As this path becomes increasingly well-trodden, transparent verification and certification of sustainable investments, such as that offered by the Guernsey Green Fund, will catalyse investor demand.
Guernsey will continue to use its position as a leading international finance centre to build upon its standing in the green finance space. And while Guernsey's finance industry will hopefully benefit from increased fund launches or increased investment into these areas, the greater benefit is the overall international strategic commitment to mitigating the effects of climate change.
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