Chet Pohl, Group Partner at Appleby in Guernsey, discusses how the focus of investing is shifting more towards ESG issues.
"The point is, ladies and gentleman, that greed, for lack of a better word, is good." Gordon Gekko. 1987.
At a time when the fictional poster boy for 80's capitalism declared that "greed is good", in many respects it already stood as the unwritten ethos which underpinned every investment strategy, every investment objective and every investment parameter for every investment fund which had a single aim....don't just show me the money, show me the alpha!
Investors wanted returns, and the bigger the returns, the broader the smile. So that is exactly what the industry set out to deliver, in whichever way it could.
The funds delivered the results, the managers earned their fees and investors saw mouth-watering returns. No sooner had they been paid, they re-invested into the successor funds.
Fast track forward a few decades and it appears simply making money will no longer do. Investors want to make money, but in the "right" way.
Conscionable profits come from conscionable investing and, in a bid access to funds, such principles are being put at the heart of investment strategies.
The voice of concern is no longer solely that of the far left. The voice of concern is the mainstream.
As with any movement, the marketing buzz words were aplenty... greentech, cleantech, conscious capitalism, impact investing. But this time something feels different. The stakes feel higher. Small changes over time will no longer suffice. The industry needed to move, and it needed to move quickly.
Investment had to be sustainable, it had to be green and it had to be socially responsible.
Investors started showing a focused interest in putting their money where their values are. So managers stopped paying lip service and started listening to what the voice of concern was actually saying. "We want a return, but not at any cost".
Brokerage firms and mutual fund companies began to offer exchange-traded funds and other financial products that follow ESG criteria. Managers and advisers hard wired ESG focused parameters into the objectives and strategies. Investors became actively concerned with a fund's environmental pedigree and channelled their greenback into sectors backed by green principles.
So what exactly is green finance and what is Guernsey doing about it?
There are as many different definitions of green finance as there are views on how to achieve it, but in a nutshell, it is an approach to financial systems which mobilise finance for clean and sustainable growth.
Underpinning such a green strategy is the objective of a net positive outcome on the environment and one which is low carbon, resource efficient and socially inclusive. It seeks a harmonious interaction between humans and nature and attempts to meet the needs of both simultaneously. The "green" badge encapsulates the concept that the basis for all investment decisions should be in some way tied to the ecosystem, and that natural capital and ecological services have intrinsic economic value.
Guernsey has, in its own way, pioneered new ground in this area through its offering of the Guernsey Green Fund (Green Fund), the world's first regulated green fund regime. To qualify as a Green Fund, the investment fund requires its assets to be invested in accordance with agreed international standards and upon approval as a Green Fund, it can be marketed as having received a regulatory accreditation that confirms it is aligned with current global green standards.
Historically there was a perception that green and ESG investments had a necessary sacrifice in the investors' returns. Put simply, the cost of being "good" was borne by investors. However, the breadth of companies now eligible for green investment has increased significantly in recent years, and so too have investors' opportunity for profit.
For now, "green" may still be a "niche allocation" of the overall spend. However, the tide seems to be turning and we may see a time when bona fide green credentials are an imperative for those who want to access capital.
"The point is, ladies and gentleman, that Green is good". Gordon Gekko. 2020.
For more information about Guernsey's finance industry please visit www.weareguernsey.com.
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