Writing in a Channel Islands business magazine prior to the escalation of the coronavirus (COVID-19) crisis in Europe, Fiona Le Poidevin, CEO of The International Stock Exchange Group, explores how the Channel Islands are utilising experience and expertise to make a significant impact in global green and sustainable finance initiatives.

As is custom, in January this year the leading global political and economic figures met in Davos for the World Economic Forum Annual Meeting. What was different this year though was that it was entitled ‘Stakeholders for a Cohesive and Sustainable World’. It was aimed at giving meaning to the phrase ‘stakeholder capitalism’ and intended to assist governments and institutions in tracking progress against the Paris (Climate) Agreement and the UN’s Sustainable Development Goals. Oh, and a 17 year old Swede by the name of Greta Thunberg was in attendance.

President Trump also made the headlines with his counter arguments and the meeting as a whole may not have delivered as many tangible developments as some, like Greta, might have hoped but there is no doubt that it kept green finance both on, and at the top of, the news agenda. Indeed, at the same time, the bush fires which were raging in Australia seared the potentially awful consequences into our minds and helped to reinforce the need to find funding solutions not just to mitigate against the effects but to fight the underlying causes of climate change.  

Channel Islands

Here in the Channel Islands it is always easy to question what impact we may be able to have in fighting climate change. We can and must change our personal habits and alter the way we run our businesses and of course, these will make a difference but inevitably, they will remain relatively localised. Where we can really make a difference is utilising the experience and expertise in our financial services industry to both encourage and facilitate global flows of capital into green finance initiatives.

Of course, the Channel Islands have a rich history in facilitating flows of capital across the globe into various different types of investment opportunities, including renewable energy. For example, around 10 years ago a cluster of Guernsey-domiciled, London Stock Exchange main market listed ‘cleantech’ funds were launched. The market has continued to evolve and so has the jurisdictional offering, with Guernsey now leveraging the experience and expertise of establishing and servicing those funds with the introduction by the Guernsey Financial Services Commission (GFSC) of the world’s first regulated green fund, the Guernsey Green Fund.

Imagine if the Channel Islands could use public and private funds to create a ‘multiplier effect’, providing a greater impact globally than any current overseas aid or lone local initiative might achieve.

In contrast, Jersey’s Socially Responsible Investment (SRI) initiative has focused on promoting the jurisdiction’s existing service offering in being able to cater for a wide range of impact investing. Jersey has also focused on its rich history as a home for philanthropic wealth and targeted the use of private capital into socially positive investments.

The Guernsey Green Finance initiative also includes the extension of the product concept more widely across the financial services industry, for example in the insurance sector, not least through Insurance Linked Securities (ILS) where Guernsey has a 20-year track record. Guernsey’s ILS community can facilitate the management of insurance structures that use parametric and predictive indicators, to provide a product that enables funding for disaster relief to be distributed to the right areas more quickly and sometimes in advance of a disaster occurring. For example, these ‘climate resilience’ developments would have vastly assisted the recovery and rebuild efforts post-Hurricane Katrina and could be used for other natural catastrophes, such as the recent Australian bush fires or predicting crop failures due to climate change.

There is also scope for the Guernsey and Jersey governments to utilise existing (or new) public funds to seed some of these products which might also attract private-sector capital from both within and external to the Channel Islands and proposals are underway to take this forward. Imagine if the Channel Islands could use public and private funds to create a ‘multiplier effect’, providing a greater impact globally than any current overseas aid or lone local initiative might achieve. It is a bold ambition but I believe, an achievable one and TISE can help.

TISE product

At TISE, we have built on our core listing offering by launching a green market segment, TISE GREEN, to encourage greater flows of capital into investments which protect or enhance the environment.

TISE GREEN is open to investments – bonds, funds and trading companies – from any jurisdiction.

Any investment must first be admitted to TISE’s Official List but beyond the usual fees for listing, there is no additional charge for the subsequent entry to, and presence on, TISE GREEN. However, additionally, an appropriate, independent third-party needs to provide verification both initially, and ongoing annually, that the investment meets an internationally recognised standard for green finance. This is hugely important in doing as much as possible to protect the integrity of the market and to enhance the value of the product.

The first investments which entered TISE GREEN came in the form of four green bonds brought to market by a Jersey-based listing agent. Faro Energy, which specialises in solar energy projects in Latin America and other emerging markets, had the four bonds successfully admitted to TISE’s Official List and subsequently approved to enter TISE GREEN. The bonds are certified green bonds under the Climate Bonds Initiative (CBI) Climate Bond Standard & Certification Scheme, with the proceeds intended to finance solar energy projects in Brazil.

We have considered widening the scope of the segment, or introducing a complementary segment, to encompass social or impact investment, not least because already we have social housing investment vehicles listed on TISE, including a number domiciled in Jersey and being promoted by Jersey Finance. However, our research indicates that while green at least has some recognised global standards, social and impact investment remains a relatively immature market from that perspective. That said, the space more broadly is seeing standard setting rapidly develop as the world plays catch up in addressing the climate crisis.

Changing times

Upon the conclusion of Davos, Philip Aldrick, Economics Editor at The Times, noted that over the years business leaders have been talking about ‘stakeholder capitalism’ but “little has been done.” Indeed, historically many corporates have only paid lip service to such lofty ideals. For example, the trend for Corporate Social Responsibility (CSR) not only provided simply a (fashionable) veneer of respectability but in addition, as it was not necessarily aligned to profitability, it meant that when got times got harder such initiatives were among the first items on the budget to be abandoned in the name of cost cutting.

Yet, Aldrick is now hopeful because “purpose is serving profit” and so called ‘sustainable’ investments are both benefitting the planet and providing an attractive economic return, rather than being seen as a voluntary ‘donation to the cause’ or an underperforming asset. In addition, corporates are facing twin-fold pressures: ‘from above’ in the form of governments, regulators and supra-national bodies who are beginning to impose Environmental, Social and Governance (ESG) standards on the business world; and ‘from below’ as, in particular, a new generation of investors is providing the catalyst with demands for better regard to ESG factors which are feeding their way through, often via institutional investors and asset managers, to investee companies.

business leaders have been talking about ‘stakeholder capitalism’ but “little has been done.” Indeed, historically many corporates have only paid lip service to such lofty ideals.

Transition

As such, it is those companies that have climate change truly on their agenda which are now in demand with investors. As Aldrick notes, energy has been the worst performing sector in the S&P 500 for three years running, despite strong profitability. The oil companies might be making money now but given both environmental policies and consumer demand, the current business model is unsustainable.

Indeed, some activists want to see the oil companies dismantled immediately. However, there has to be a realism that firstly, we cannot simply abandon our current dependency on fossil fuels as there is not enough renewable capacity available right now and secondly, only such giants as Shell and BP have the economies of scale of to invest in technological development and enable its widespread deployment to meet our energy needs. BP’s recent announcement to reach ‘net-zero’ carbon emissions by 2050 is testament to the fact that it is recognising the need to transition.

Conclusion

Aldrick concludes that “green is the new greed.” To recap, he means this positively in that it is no longer seen simply as a nice thing to do but that it is also attractive to investors who can realise an attractive return. However, as this transition takes place and as ‘going green’ becomes more profitable, it does raise the spectre of greenwashing.

This is worth us in the Channel Islands considering as we develop policies, standards and products which facilitate the flows of global capital into environmental initiatives. We should be bold, we need to be brave but we also need to be prudent. We have the experience and expertise to make a significant impact through green and sustainable finance initiatives and as such, demonstrate to our detractors that the islands now have an even more positive role to play in the global community.

To re-spin Aldrick – and to hijack Gordon Gecko – green is good.

This article was originally published in Business Brief, March 2020