While it remains to be seen whether 2018's super-heated summer is a further indication of fundamental climate change or a statistical outlier, it is incontrovertible that governments worldwide have committed to reducing carbon emissions. Further, many of the best and brightest minds are developing green technologies which are:
- improving the air, water and land quality;
- helping to ensure natural resources are used more efficiently; and
- mitigating the environmental damage caused by the current use of fossil fuels.
These technologies are proving to be popular and, increasingly, profitable asset classes. There is also a growing interest among investors for truly green investment funds which do not sacrifice returns.
In the light of these factors, the Guernsey Financial Services Commission (GFSC) has introduced the Guernsey Green Fund designation to provide investment managers with an opportunity to:
assure investors that their investments are contributing to initiatives that have a positive environmental impact on the planet and in so doing inspire confidence that their investments are well regulated.(1)
The designation is available to registered and authorised schemes run in accordance with the Guernsey Green Funds Rules, which were issued by the GFSC on 6 July 2018.
The kitemark will be capable of being used in connection with Guernsey-registered or authorised schemes whose assets are invested with the aim of spreading risk and with the ultimate objective of mitigating environmental damage resulting in a net positive outcome for the environment.
To this end, 75% of the scheme's investments must be in asset classes that fall within a set of environmental, social and governance principles compiled by the joint finance group of certain multilateral development banks, including the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the International Finance Corporation and the World Bank. The asset classes include:
- net emission-reducing renewable energy technologies such as solar, wind and ocean power;
- technologies that improve the efficiency of transmission and distribution systems; and
- the retrofitting of existing buildings to enable reductions in energy consumption.
The remainder of the scheme's assets can be invested more broadly, but must not lessen the scheme's overall objective of mitigating environmental damage or be invested in certain proscribed asset classes, including uranium mining, fossil fuel-based power generation and "anything that helps to extend the life of fossil fuel usage".
In addition, the investment manager may include a statement in the scheme's prospectus that the manager intends to incorporate environmental, social and governance principles into its investment analysis and decision-making processes, further enhancing the socially responsible nature of the investment.
The GFSC will designate a scheme as a Guernsey Green Fund only if it:
- is satisfied that the scheme's principle documents and its prospectus appear to conform to the new rules; and
- has received a certification that the scheme meets the green criteria from either:
- an independent third party; or
- a Guernsey licensee contracted to the scheme (usually the administrator or manager of the scheme).
Once it is up and running, the designated administrator must, on a monthly basis, monitor the investments made by the scheme against the green criteria specified in the prospectus and its investment criteria. Where the scheme contravenes the criteria, it must take certain remedial steps to rectify the situation and, where the contravention continues to be unrectified, the administrator must notify the GFSC. In addition, the designated administrator must submit an annual return to the GFSC detailing how the scheme has invested within the green criteria within six months of the scheme's year end to confirm the that scheme continues to qualify as a Guernsey Green Fund.
It is intended 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 as it does on Guernsey's strong reputation as a well-regulated jurisdiction for financial products and one that is committed to a greener future.