NEWS & INSIGHTS
Kevin Smith, Director at Estera, takes a look at the important role Guernsey is playing in the global green investment space
On 20 September 2019, millions of people around the world took to the streets and protested as part of a global climate strike. What turned out to be one of the largest ever demonstrations over global warming proved beyond any doubt how high climate change is on the public agenda.
Inspired largely by students around the world, the march is indicative of a major shift within society over awareness and concern for environmental, social and governance (ESG) issues. The younger generations are increasingly making their voices heard, and that is being translated into much broader areas, including where they choose to invest their money.
While ESG investing has seen a significant rise in recent years, it has been predicted that over the next two to three decades, the millennial generation could put between $15 trillion and $20 trillion into US-domiciled ESG investments alone. This figure would roughly double the size of the current US equity market . If that trend continues, then the figures invested by the so-called Generation Z could be quite staggering.
If that huge 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 rules in July 2018, the Guernsey Financial Services Commission (GFSC) created the world’s first regulated green investment product and gave both investors and managers 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.
Now that Green Funds are well into their second year, there have been some notable developments that truly demonstrate the value that the product is offering.
In April of this year, for instance, the Bluefield Solar Income Fund achieved accreditation as a Guernsey Green Fund and became the first fund listed on the London Stock Exchange (LSE) to do so. A Guernsey-registered, closed-ended investment fund, Bluefield Solar invests in more than 80 UK-based solar assets, targeting long-life solar energy infrastructure that’s expected to generate stable renewable energy output over a 25-year asset life.
Not only did the accreditation of such a major fund help raise the profile of the innovative Guernsey Green Fund regime, it also reinforced the fact that it’s not just new funds that are applying for Green Fund status. Significantly, Bluefield Solar was launched in 2013 and was already listed on the Main Market of the LSE when it applied for Guernsey Green Fund accreditation.
While we readily admit that the number of funds accredited under the Green Fund regime is still relatively small, it was never the expectation of Guernsey’s fund industry that there was going to be an explosion in Green Fund launches. But there is a feeling among fund practitioners in the island that there is a definite growing interest.
The bigger picture
The Green Fund regime is just one part of a concerted effort to make Guernsey a centre of green investment excellence. Hot on the heels of the Guernsey Green Fund, The International Stock Exchange (TISE) launched a new market segment, TISE GREEN, which aims ‘to enhance the visibility of those investments which make a positive impact on the environment’.
Similar to the Guernsey Green Fund, any investment wishing to be admitted to TISE GREEN must meet an internationally recognised standard of green finance criteria. However, admission to TISE GREEN is open to all types of green investments, including bonds, funds and trading companies, from all jurisdictions.
And again, as with the Green Fund, TISE GREEN helps those attracting investment into environmentally beneficial initiatives to highlight their green credentials while, at the same time, providing easier access for investors who are looking to put their money into those investments.
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 Guernsey Green Fund, but also through engaging with international initiatives and partnering with fellow global finance centres.
Earlier this year, Guernsey Green Finance announced a collaboration with the UK Green Finance Initiative and also played host to Stephen Nolan, Managing Director of the International Network of Financial Centres for Sustainability (FC4S). This is a United Nations-led programme which encourages financial centres to place sustainable and green finance at the heart of their operations and help fight climate change – Guernsey became an FC4S member at the end of last year.
And businesses on the island continue to support managers launching a range of sustainable funds – such as the Greensphere Capital launch, in June this year, which was established as a Guernsey Private Investment Fund. Its intention is to back companies and projects that help to mitigate the biggest risks facing our generation – resource scarcity, commodity and fuel volatility, and climate stress.
More recently, in mid-September, two new offerings added to Guernsey’s green credentials. Commercial lender Sarnia Mutual launched a new ‘green loan’ product, offering preferential rates for customers seeking loans for certain environmentally friendly products, such as electric cars and bikes, and household insulation.
The island also saw the launch of Environmental & Social Impact Monitor (ESIM), a not-for-profit accreditation service for island businesses which rates businesses on environmental and social commitments. ESIM Founder Marc Laine was reported as saying that said he intended the new business to facilitate the development of a new advisory and auditing sector which would ultimately be able to export skills to other jurisdictions.
The road ahead
The reality is that Guernsey has been administering clean technology and ESG funds for quite a few years, so these recent developments are simply building on the expertise in this area and should only help attract further investment.
And according to a recent study carried out by Guernsey Finance, the current political backdrop is encouraging private equity managers to consider more investment in green and sustainable finance.
Three-quarters of those surveyed had increased exposure in green and sustainable finance and everyone planned to do so in the near future. They said that external drivers, such as investor demands and competitive forces, including the ‘Attenborough Effect’, where the veteran broadcaster David Attenborough is credited with making people more conscious about the impact of their consumption, were the main reason for doing so.
They also agreed that transparent verification and certification, such as that offered by the Guernsey Green Fund, will catalyse investor demand.
It’s clear that Guernsey is fully committed to its role as a global citizen, and will use its position as a leading international finance centre to keep building on its standing in the green finance space. Indeed, Guernsey Green Finance continues to review the potential for the development of green insurance.
And while Guernsey’s finance industry will hopefully benefit from increased fund launches or increased investment into these green areas, the greater benefit is the overall international strategic commitment to mitigating environmental damage and climate change.
This article was first published in Issue 65 of BL Global pp. 62-63
Effective from Monday 13 January 2020, our team in Mauritius are moving offices
Navigating the upcoming private funds bills in Cayman: what now for the funds and capital markets industry for 2020?