As a global finance centre and global citizen, Guernsey is adapting to the increasing demand for green investments. The Sustainable Development Goals, a collection of 17 global goals set by the United Nations, are mankind’s most ambitious effort to date to secure its future on earth. Stephanie Glover, Head of Strategy and Sustainable Finance at WE ARE GUERNSEY, provides an insight into Sustainable Finance Guernsey, which is the initiative Guernsey Finance is aiming to deliver on Guernsey’s strategic commitment to sustainable finance.
The transition to net zero requires a fundamental rewiring of our global energy system. It will drive disruptive innovation across almost every sector and every region globally. This represents an enormous financing opportunity – with estimates ranging from $125 to $350 trillion of total investment required to reach net zero by 2050.
However, the rush by asset managers to burnish their green investing credentials creates a dilemma for investors: How do they know that what they’re buying is meeting its objectives? This has been particularly relevant over the course of the last year as many ESG (Environmental, Social and Governance) focused funds have been reclassified and downgraded as rules over what can be considered ESG become stricter.
Working alongside other leading international financial centres, Guernsey is looking to tackle this issue as part of our membership of the UN-convened Financial Centres for Sustainability (FC4S) Network.
In the latest UN FC4S assessment survey, more than half (52%) of the financial centres surveyed believed that developing consistency across standards, taxonomies and guidelines was a top priority, and doing so will help alleviate some of the investor concerns over what is a green or ESG fund.
A WORLD FIRST
This is why Guernsey developed the world’s first regulated green fund regime – the Guernsey Green Fund (GGF). The GGF is essentially a kitemark designation scheme that certifies a fund’s green credentials, helping to identify truly green investments, and aligns with internationally recognised green criteria.
As of Q3 2022 £5.6 billion of investment in terms of total net asset value has been given the GGF designation in Guernsey, meaning investors in those funds can be confident that their investments are mitigating the risk of climate change. Funds receiving the kitemark have included investments in wind, solar, forestry and sustainable food technologies.
To ensure that funds accredited with the GGF kitemark are genuinely offering investors a sustainable strategy, 75 per cent of a fund’s assets must be directed towards the likes of renewable energy projects, such as wind and solar farms, energy efficiency projects or low-carbon transport schemes, among other possibilities.
The remaining quarter of an investment fund’s holdings must not lessen or reduce this overarching objective of mitigating environmental damage. These exclusions follow the internationally recognised “The Climate Bonds Initiative Green Bonds Methodology – Exclusion Policy” such as fossil fuel-based power generation including ‘clean’ coal. Any fund based in Guernsey can achieve the GGF kitemark if it hits the criteria, and with the island’s international fund-buying client base, there is a real opportunity to prosper in the realm of sustainable investing.
This is vitally important, especially given that finance firms managing $130 trillion have pledged net-zero targets on the back of COP26. Ensuring this capital is used effectively and ethically will be one of the most prominent challenges for investors. However, schemes such as this will help investors, who only wish to invest in verified green industries, do just that.
STICK OR TWIST?
Debate about how to approach brown investment such as investment in fossil fuels also is raging in investment circles at present.
At one end, campaigners are urging for divestment, but more moderate voices accept the need for a managed transition. How, some investors ask, can they steer the fortunes of fossil fuel firms if they don’t have skin in the game?
This is an especially pertinent question because any fossil fuel companies that fall into private hands and away from public markets are far less likely to transition to clean energy generation as quickly due to the lack of investor scrutiny and oversight. But there will be a significant need for financial services practitioners, such as those based in Guernsey, to assist companies manage the complexities of the transition in a just and transparent manner.
Guernsey Finance conducted research, in association with Baringa Partners, on private finance and its role supporting the just transition. This research highlighted how Guernsey, as a leading international finance centre and green finance hub, can play a role disproportionate to its size in supporting the transition, with potential benefits such as growth of Guernsey’s green investment sector from £4.5bn to £56bn by 2040.
This research also highlighted that the significant opportunity for the Guernsey finance industry to drive a proactive sustainability agenda, and establish itself as a leading global centre for financing a just transition to net zero. This includes traditional sectors such as insurance and investment management, as well as the development of new specialist expertise and support services, for example around ESG, data and fintech. As a jurisdiction with over 60% of its GDP attributable to the finance sector, harnessing this opportunity could be critical to support Guernsey in remaining competitive within the context of wider movements towards sustainability in global financial markets. Key differentiators that enable Guernsey to capture this opportunity are:
- A strong track-record for innovation
- An engaged, supportive regulator
- Fast, easy access to global markets
- A strong, stable, trusted home for private capital
- A trusted home of specialist solutions
- A strong pool of experienced advisors
It is also important to ensure that investors don’t focus solely on greenhouse gas emissions and carbon within their sustainable investment portfolios, and this view point is only growing in importance.
Many other factors, including biodiversity, are extremely important for the health of the planet, and subsequently humanity. This is why Guernsey has created another world first Natural Capital Fund regime, which supports the GGF kitemark and add to the ecosystem of sustainable finance in Guernsey. This regime will offer the same benefits to investors as the GGF such as transparency and confidence in the sustainability criteria of their investments, but with a focus on natural capital and nature positive investments.
Essentially, sustainability can no longer be an adjunct for investor portfolios; ESG (environmental, social and governance) decisions need to be factored into every investment decision. And it’s because of this that investors need a proactive finance centre like Guernsey steering them towards the most authentic sustainable investments.