Just over three years ago in January 2016, the City of London launched the Green Finance Initiative (GFI). This was the first time that a financial centre had taken a strategic approach to the fundamental challenge of climate change and environmental sustainability. The landmark Paris Agreement on climate change had just been signed and China had inaugurated its presidency of the G20 with the establishment of the Green Finance Study Group, which it co-chaired with the UK.
Back then, only a handful of experts expected the surge in interest in green finance across global markets that followed. It was not new but it certainly was not mainstream either. Green finance has now moved from being a specialist and somewhat worthy endeavour to become a recognised feature of both financial practice and financial policy.
In July 2018, the Guernsey Financial Services Commission (GFSC) released the world’s first regulated green investment fund product. By providing a trusted and transparent product that contributes to the internationally-agreed objectives of COP21, the United National Climate Change Conference, the Guernsey Green Fund aims to increase investors access to green investments.
The move is designed to further Guernsey’s plans to become the ‘go-to’ international finance centre for green finance, and the Guernsey Green Fund has the objective of seeking a return for investors while mitigating environmental damage. The Guernsey Green Fund enhances investor access to the green investment space by providing 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.
Any class of Guernsey fund can notify of its intention to be designated a Guernsey Green Fund whether registered or authorised, open-ended or closed-ended providing it meets the eligibility criteria.
Under the Guernsey Green Fund Rules, Green Funds must invest 75% of their portfolio in investments meeting the green criteria. At present the green criteria used are the Common Principles for Climate Mitigation Finance Tracking developed by the joint finance group of multilateral development banks which permit investments in:
• Renewable energy
• Agriculture, forestry and land-use
•Lower-carbon and efficient energy generation
• Non-energy greenhouse gas reductions
• Energy efficiency
• Waste and wastewater
• Low-carbon technologies
• Cross-cutting issues
The Green Fund's remaining 25% of the portfolio can be invested in other asset classes, provided investments do not lessen or reduce the Green Fund’s overall objective of mitigating environmental damage (with certain investments being expressly excluded as a result).
The GFSC will designate Guernsey Green Funds on its website and the use of the Guernsey Green Fund logo that is provided to a Guernsey Green Fund to be used on its various marketing and information materials (in accordance with the GFSC’s guidelines on logo use) so that it may clearly display its Guernsey Green Fund designation and compliance with the Guernsey Green Fund Rules. The GFSC is currently in the process of registering the Guernsey Green Fund logo as a trade mark with Guernsey’s Intellectual Property Office website.
The different sections of the Guernsey Green Fund are designed to allow flexibility to the applicant to select the sections that are most relevant to the product and its potential investors.
Andy Sloan, Deputy Chief Executive, Strategy at Guernsey Finance, said “Guernsey has already been highlighted as an ‘emerging global contender’ in the inaugural Green Global Finance Centres index, launched by the think tank Z/Yen. This move puts us at the forefront of green finance development, and particularly the emerging area of green funds. Guernsey’s reputation in the sector and the breadth of our funds offering positions us perfectly.”
Emma Bailey, director of the Investment Supervision and Policy Division at the GFSC, said “The Guernsey Green Fund rules provide a framework upon which international green investments can be encouraged and facilitated in the Bailiwick of Guernsey. The rules assure investors that their money contributes to initiatives that have positive environmental results while being well regulated.
"The island has a sterling reputation as a funds centre and has the ability to attract individuals and institutions from around the world who want their investments to pursue environmental objectives.”
Jon Young, Head of Langham Hall Guernsey noted that “I hope that investment managers and investors will see the Guernsey Green Fund designation as a valuable green assurance mark that will become a recognised standard for the investment industry, building on Guernsey's strong reputation as a well-regulated jurisdiction for financial products and one that is committed to a greener future.”
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