Anyone with an interest in green and sustainable finance will not have failed to notice the flurry of regulatory changes and developments in this area recently.
The Commission recently published the results of its Guernsey Green Fund thematic together with a Spring Green Consultation Paper. It was pleasing to note that there is a strong appetite for green finance in Guernsey and the Commission found no evidence of greenwashing within the current population of Green Funds, although they did identify room for improvement in the approaches taken by administrators monitoring Guernsey Green Funds.
At the time of writing the Guernsey Green Fund has one set of criteria for green funds to adhere to, being the Common Principles for Climate Mitigation Finance Tracking. The principles state that “an activity is classified as related to climate change mitigation under the common principles if it promotes efforts to reduce or limit greenhouse gas emissions or enhance greenhouse gas sequestration.” The thematic report provides useful clarification for fund administrators that whilst some funds may choose to meet this objective by measuring carbon emission savings, other measurements may be utilised so long as there is:
“a demonstrable approach in the underlying assets to mitigate environmental damage and that the fund (or parties to the fund) monitors that approach on an ongoing basis with a clear exit strategy for any assets that do not meet the criteria.”
The day prior to the release of the Commission’s green papers the Sustainable Finance Disclosure Regulation came into force in the EU. The Directive requires AIFs to disclose on their website, in pre-contractual documentation and in periodic reports how the product meets any environmental or sustainable objectives, the methodologies it uses to measure those and the extent to which it meets those objectives. The technical standards that underpin the Directive have not yet been endorsed but are expected to come into force on 1 January 2022. Firms to whom the Directive applies are therefore expected to adopt a best-efforts approach to compliance with the Directive and the draft standards. The timing and nature of the release of the Directive and the Standards could make this a challenging Directive to comply with.
In their Spring Green Consultation Paper, the Guernsey Financial Services Commission fed back on the proposal to adopt the EU Taxonomy for Sustainable Finance as an additional alternative green criterion under the Guernsey Green Fund regime. At the time of writing the final form of the Taxonomy has yet to be agreed and the Commission has stated it will continue to monitor this. In the meantime, the United Kingdom authorities have signalled their intention to introduce their own Green Taxonomy and it is possible that this may also be a potential candidate for a Green Fund criteria.
Add into this mix that in November 2020 the UK published a roadmap setting out an indicative path towards mandatory climate related disclosures across the UK economy aligned with the recommendations of TCFD (Taskforce on Climate related Financial Disclosures), and the IFRS has also proposed to create a new global Sustainability Standards Board. For Guernsey funds marketed into both the EU and the UK it remains to be seen whether there will be some cross over in the applicable requirements.
One of the key findings of the Commission’s thematic report was that green investment knowledge and expertise was not widespread within the industry and that local firms will have to ensure that staff are appropriately trained, especially with the ongoing oversight obligations on the administrator. In addition, firms will need to identify which of the various international standards and regulations may apply to them and their clients and upskill their staff appropriately.
BDO is well placed to advise firms on their regulatory obligations in respect of Guernsey Green Funds and provide training. BDO can also advise on a number of different green and sustainable standards. Please get in touch if you would like to know more.