Guernsey sustainable funds
21 August 2023
Guernsey Green Fund
The Guernsey Green Fund was launched by the Guernsey Financial Services Commission (''GFSC''), the island's regulator, in 2018 as the first regulated Green Fund product of its kind in the world and endorses schemes through which investments into various green initiatives can be made that contribute to the internationally agreed objectives of mitigating environmental damage and climate change.
Guernsey Green Funds currently on the register at the GFSC include those with forestry, farmland, renewable energy, agriculture, sustainable technology and food tech investment objectives. At the end of the first quarter of 2023, registered Guernsey Green Funds had assets valued at £5.6bn. With more Green Funds in the pipeline and existing funds having the opportunity to retrospectively apply, use of the accreditation is expected to only grow in popularity.
Guernsey Green Fund designation provides investors with a trusted and transparent product, provided through compliance with the Guernsey Green Fund Rules, 2021 (the ''Green Fund Rules''), where a fund must ensure its portfolio meets the eligibility criteria where 75% of assets by value must meet the green criteria with the remainder invested more broadly, but must not lessen the overall objective of mitigating environmental damage and must not be invested in certain proscribed asset classes.
Any class of Guernsey fund can notify its intention to be designated a Guernsey Green Fund, whether registered or authorised, open-ended or closed-ended, provided it meets the eligibility criteria. In accordance with the Green Fund Rules, applicants will be required to submit the appropriate notification forms to the Commission.
The application requires submission to the GFSC of:
- a final version of the fund's prospectus;
- a declaration by the fund's designated administrator stating that the fund complies with the Green Fund Rules;
- either an independent third-party verifier or self-verification certifying that the fund meets the green criteria, which complies with the Green Fund Rules.
For new funds, the usual timeframes will apply depending on whether the fund is applying through the authorised or fast track route and up to five additional days will be taken to process the Green Fund notification. For existing funds, up to five days will be taken to process the Green Fund notification. Following designation from the GFSC the fund will be listed as such on the GFSC's website and it will be permitted to use the Guernsey Green Fund logo on its marketing. Third-party monitoring and verification of adherence to the disclosed investment criteria on a monthly basis is required to retain the designation.
Natural Capital Fund
The Natural Capital Fund was launched by the GFSC in 2022, and has a broader, nature-focussed, scope than the Guernsey Green Fund regime. The extent of the Natural Capital Fund regime includes schemes which, through their activities, commit to significantly reducing environmental harm to nature as well as those which aim to contribute positively. Examples of natural capital include clean air, water supply, plant life, animals, soil and minerals.
The Natural Capital Fund regime has a broader and more nature-focussed scope than the Guernsey Green Fund regime, whose focus is centred on climate change mitigation and adaptation. It was envisaged by the GFSC that through the introduction of the regime a wider spectrum of investment strategies may be accommodated, thereby increasing the range of schemes which might seek designation.
The designation process is relatively similar to the Guernsey Green Fund as set out above, where any class of Guernsey fund can notify of its intention to be designated a Natural Capital Fund, providing it meets the eligibility criteria in compliance with the Natural Capital Fund Rules, 2022 (the ''Natural Capital Rules'').
Under the Nature Capital Rules, a scheme’s objectives must align with either:
- the United Nations Convention on Biological Diversity’s Post-2020 Global Biodiversity Framework’s 2030 Action Targets;
- the United Nations Sustainable Development Goals 12-15; or
- the European Union Taxonomy for Sustainable Activities’ Environmental Objectives (c) to (f).
These frameworks incorporate the immense variety of natural capital and provide a comprehensive understanding of the strategies and goals necessary to abate natural capital loss. This affords a Natural Capital Fund the flexibility to adopt the sections of the frameworks relevant to its specific investment focus and strategy, whilst operating in line with internationally recognised standards. The objectives of a Natural Capital Fund should clearly identify which of the above are relevant to its investment strategy.
The application to the GFSC requires submission of:
- a final version of the scheme’s prospectus;
- a declaration by the scheme’s governing body stating that the scheme complies with the Natural Capital Rules;
- a report detailing how the investment approach and objectives align with the international standards, the approach to target setting and what was set, and how compliance will be monitored; and
- a third-party verifier certifying that the scheme complies with the Natural Capital Rules.
In addition to the introduction of the Natural Capital Fund, the GFSC has issued new Guidance on Anti-Greenwashing (the “Guidance”). Greenwashing involves misrepresenting the sustainability aspects surrounding investment products and is a global regulatory concern. To protect investors, the Guidance makes clear the GFSC’s expectation that any explicit claims or statements indicating that a scheme or its underlying assets are environmentally sustainable investments are not misleading and are capable of being evidenced by the scheme or its service providers.
As part of any application process, and its ongoing supervision, the GFSC may request such evidence to support any claims that a fund or its assets are environmentally sustainable investments. The Guidance makes clear that the GFSC will take appropriate action in line with its statutory functions in cases where such claims cannot be properly substantiated.
The introduction of the Natural Capital Fund regime demonstrates Guernsey’s continued determination to remain at the forefront of the sustainable investment sector, with various countries making a commitment towards striving for "net zero". Guernsey is exceptionally well placed to support the growth of green products and increase its reputation as a leader in the space.