Sustainability is increasingly dictating how wealth is invested. Michelle Tring and Kevin Smith explore the role of Guernsey in facilitating sustainable investments for high-net-worth individuals (HNWIs).*
*Article first published in eprivateclient's Guernsey 2020 report
Sustainable finance is no new concept. However, the COVID-19 pandemic, recent initiatives such as Extinction Rebellion and well documented natural disasters such as Australia's bush fire crisis have catalysed both awareness and concern for environmental, social and governance (ESG) issues.
Across our business we have witnessed first-hand how ESG factors are influencing decision making and in the private wealth space, sustainability often underpins our conversations with clients.
A new, green generation
Sustainability initiatives and ESG continue to gain significant momentum. From 2017-19, socially responsible investments grew by 34% to $30.7 trillion. This can, in part be attributed to what is being called 'The Great Wealth Transfer', with the millennial demographic set to inherit $30 trillion in assets by 2025. While the older generation may have been focused on generating and preserving wealth, we increasingly see that the younger generation are more motivated by philanthropy and the value proposition behind sustainable investing strategies.
We often see our clients stress the importance of wanting to work with advisers that can help them to integrate ESG principles in a meaningful manner. The inter-generational transfer of wealth places an onus on advisers to educate and guide the next generation as they assume control of assets from their parents. With eight of the top ten global risks ESG related, concern over sustainability is not going to dissipate either. This represents a wider issue for the investment sector and the requirement for all of us across the value chain to demonstrate a commitment to ESG best practice.
Funds need to evolve alongside sustainable sentiment
Running parallel to the demand for sustainable investments is the need for the funds industry to evolve alongside the demands of a generation that prioritises investing in companies and projects committed to ESG principles. In this context, Guernsey's funds environment is a leading example.
Guernsey's green future
With the introduction of the Guernsey Green Fund rules in July 2018, the Guernsey Financial Services Commission created the world's first regulated green investment product. It provides 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.
Since the launch of the Guernsey Green Fund product, there have been some notable developments demonstrating its value. In April 2019, 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 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.
The number of funds designated as Guernsey Green Funds continues to increase and at Ocorian, we continue to receive enquiries from promoters looking to set up such funds. Yet the regime is just one part of a concerted effort to make Guernsey a centre of green investment excellence. The International Stock Exchange's market segment, TISE GREEN aims 'to enhance the visibility of those investments which make a positive impact on the environment' and is open to all types of green investments, including bonds, funds and trading companies, from all jurisdictions.
Guernsey Green Finance – the umbrella body for green finance in the island - is also intent on providing a comprehensive range of green and sustainable financial services including insurance and banking. It organised a sustainable finance week throughout Guernsey in early June. It brought together (virtually) leading sustainable finance experts, private wealth and family office professionals and advisers from London, Zurich and Guernsey for dialogue on the issue of financing sustainability from private wealth portfolios.
A rapidly changing landscape
Global pressure on individuals and businesses to shift to more sustainable ways of operating is only going to intensify and developments in sustainable and green investing continue to evolve in Guernsey. As ESG factors are closely scrutinised by the next generation of HNWIs, both fund and wealth managers need to assess their capabilities to deliver suitable offerings.
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