This article first appeared in Business Brief magazine, April 2021 edition.
In the last few years, Environmental, Social and Governance investing, or ESG, has evolved into a financial industry megatrend, one that has been accelerated by the Covid pandemic and shows no sign of slowing down.
Instead of fading out as a result of the global health crisis, there has been a marked expansion in funds with a strong sustainable focus – answering the calls of investors for the recovery from the pandemic to be green. But with this has come an ever-changing regulatory landscape.
Against the backdrop of the introduction of the EU Sustainable Finance Disclosures Regulation (SFDR) on 10 March, there are concerns that the speed at which ESG regulation is moving and the number of differing regimes could act as a barrier to investors committing to invest.
According to Ogier partner and investment funds and asset management lawyer Craig Cordle, now is the time to take stock and consider how Guernsey is positioned to build on its funds offering in this changing environment.
"The pandemic has been an important catalyst, instigating discussion around the environmental sustainability of our practice, processes and systems – in essence, how we do things. One of the outcomes of the pandemic will be for funds and managers to look carefully at their governance procedures – and by this, I don't just mean ESG funds, but all funds. There is a strong case for that review to include a look at issues around sustainability and looking at the wider indirect environmental impact of private equity vehicles from cradle to grave," he said.
"While some jurisdictions are working hard in this space, notably Hong Kong and, increasingly, the EU, and Guernsey has its Green Finance Principles, there is no standard set of ESG rules across the world. Everyone accepts ESG is a good thing, but with so many different frameworks in place, it can be a barrier to businesses wanting to make these products robust and scalable across multiple jurisdictions."
Navigating this landscape, understanding what ESG rules are relevant and what key actions are required, is essential and asset managers are at the centre of this challenge. But with investor momentum firmly behind sustainable investing, there is an opportunity – and competitive advantage – for those jurisdictions that can offer advisory expertise combined with a simple, flexible fund regime.
"What is clear to me is that with continuing developments such as the fast-tack licensing of managers of overseas collective investment schemes and Guernsey's Green Fund regime, Guernsey remains a very attractive destination for PE managers looking to launch new funds or migrate their management of funds to Guernsey.
"In particular, the Green Fund regime is in exactly the right space at the moment for what investors are looking for – and Guernsey is well-placed with its Green Private Equity Principles – demonstrating Guernsey's thought-leadership in this space."