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13 May 2021
In recent years, environmental, social and governance (ESG) investing has evolved into a financial industry megatrend – one that has been accelerated by the COVID-19 pandemic and shows no sign of slowing.
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 2021, 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.
The COVID-19 pandemic has been an important catalyst, instigating discussion around the environmental sustainability of practice, processes and systems. One of the outcomes of the pandemic will be for funds and managers to look carefully at their governance procedures – not just ESG funds, but all funds. There is a strong case for that review to include a look at issues around sustainability and the wider indirect environmental impact of private equity vehicles.
While some jurisdictions are working hard in this space (eg, Hong Kong and, increasingly, the European Union), and Guernsey has its Green Finance Principles, there is no standard set of ESG rules across the world. Everyone accepts that 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 and understanding which 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.
Continuing developments such as the fast-tack licensing of managers of overseas collective investment schemes and Guernsey's Green Fund regime make Guernsey an attractive destination for private equity managers looking to launch new funds or migrate their management of funds to Guernsey.
In particular, the Green Fund regime is exactly what investors are currently looking for, and Guernsey is well placed with its Green Private Equity Principles, demonstrating its thought leadership in this space.
An earlier version of this article was published in Business Brief magazine, April 2021 edition.
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