At both an industry and governmental level, there has been a real acceleration over recent months in thinking around sustainable finance. The UK, for instance, is on a targeted transition to net zero carbon emissions by 2050 with private capital expected to play a key part in realising that goal in line with the work of the COP26 Finance Hub, led by Mark Carney. Chancellor Rishi Sunak also announced plans in his budget earlier this year to make £15 billion of green bonds available to investors. While the UK will mandate climate reporting for all financial institutions by 2025. Jersey’s government too has set itself an ambitious target of making the Island carbon neutral by 2030.
Meanwhile, we have seen an explosion in ESG investing opportunities in the past 12 months, complemented by new supporting tools and evaluation services coming to market to support those ambitions. Analysis from S&P Global Market Intelligence found that during the pandemic, ESG funds were found to have achieved gains of up to 20%, outperforming traditional funds. It is a long-term trend too – according to research from Deutsche Bank, ESG assets are likely to increase exponentially in the coming year to surpass US$100 trillion by 2028. This is all significant because access to green and sustainable investment opportunities is no longer something reserved for the privileged professional investor – it is reflective of a mindset where sustainability as an issue has moved increasingly into mainstream public consciousness.
The global shift towards a greener, more inclusive economy is gathering pace. Investors are no longer focused solely on returns and the international finance industry – from institutional asset owners, to alternatives managers, to the administrators and professionals who service those assets – is having to respond like never before to meet the growing demand for portfolios to reflect purpose, through improvements in environmental, social and governance standards.
The reality is that although the pandemic has been a catalyst for thinking in this space, sustainable finance has been on a journey of evolution for some time. Informed by frameworks like the UN’s Sustainable Development Goals (SDGs), the focus has grown increasingly over a number of years on how rewiring the financial system can help accelerate solutions to a wide range of complex, interconnected global issues – from biodiversity loss and climate change to inequality and poverty.
Even before the pandemic, between 2016 and 2018, the value of sustainable investment assets managed globally grew 34% to more than $30 trillion (Global Sustainable Investment Alliance’s Review 2018). It was against this backdrop that Jersey Finance undertook a significant piece of work in 2020 with Equilibrium Futures to help the Island’s finance industry respond to the long-term risks and opportunities presented by the evolution of sustainable finance.
Jersey already had a good story to tell in this space with the industry facilitating billions of pounds of investment into impact and ESG funds. Firms had already started to integrate ESG standards into their business models and adapt their client offering to respond to changing demands, while we had also seen the emergence of a number of large Jersey-based alternative fund structures deploying much-needed capital into areas such as renewable energy. However, prompted by factors such as emerging regulation in key markets and the mainstreaming of ESG into financial decision making, Jersey recognised that a formal, robust framework that could help propel Jersey to the forefront of the sustainable finance arena was desirable.
The fruit of that comprehensive piece of work was unveiled in early 2021 in conjunction with a new report and a long-term strategic plan entitled ‘Jersey for Good: A Sustainable Future’, which recognised the responsibility of Jersey’s finance industry to support the global transition to a more sustainable future and made the case for catalysing the industry’s transformation around a common strategy shared by all key stakeholders. Setting out a vision and a number of objectives for where Jersey intends to be by 2030, the report included an initial two-year ‘pathway’ to deliver on those objectives.
Collaboration, communication and upskilling were at the heart of that pathway, with the ultimate vision that ‘by 2030, Jersey will be recognised by its clients, key stakeholders and other partners as the leading sustainable international finance centre in the markets it serves’. This ambitious goal rests on the ability of Jersey to demonstrate genuine credentials in sustainable finance.
The report and strategic plan make a number of key recommendations including:
Building strong stakeholder partnerships both locally and internationally
To ensure that each sector within Jersey’s finance industry has the tools to integrate sustainability within a joined-up policy framework, aligned with global standards. Above all, the strategy recognises that Jersey as an Island needs to walk the talk.
Delivering sustainable finance on a green sustainable Island
This requires stronger collaboration alignment between the finance industry, the Jersey Financial Services Commission (JFSC), the Government of Jersey and the people of Jersey on sustainability issues.
To deliver on these recommendations, the initial two-year pathway focuses action around a number of core tasks that are designed to strengthen our foundations as a sustainable finance centre:
- Collaboration, with shared governance and ownership of the strategy, engagement across sectors and increased representation of Jersey within international bodies like the UN-convened Financial Centres for Sustainability (FC4S).
- Deliver awareness and training, to build capacity and ensure we are future-proofing our industry’s skills base.
- Encourage product innovation and quality, capitalising on Jersey’s track record as a centre of excellence in areas such as governance and fintech.
- Creating an enabling environment, by ensuring Jersey’s regulatory framework is robust while setting the right incentives to scale up sustainable finance.
- Communicating action and impact, to ensure that we deliver on our vision in a transparent and credible manner.
A few months on from the launch of the strategy and vision, we are already seeing outputs from the workstreams it recommends and progress in a number of areas. A steering group consisting of key stakeholders has been established and there is greater participation in external bodies and forums to bring together broad and complementary expertise, we are seeing enhanced access to specific training and an enabling regulatory environment is being nurtured.
Further, Jersey’s financial regulator (the JFSC) also recently made changes to a number of its Codes of Practice to certified funds and funds service businesses and the Jersey Private Fund (JPF) Guide, following feedback received from a consultation with the finance industry and key stakeholders aimed at reinforcing the framework for sustainable investments.
Sharing similar aims to the EU’s Sustainable Finance Disclosure Regulation (SFDR), these changes will counteract the potential for greenwashing by supporting sustainable finance through a commercially viable disclosure regime – creating the right environment for ESG investments to flourish.
We are also seeing greater symbiotic convergence and integration between Jersey’s fintech and sustainable finance sectors. For instance, a number of service providers are tailoring their fund solutions to include new data-driven propositions and developing new tools that deploy the latest technologies to collect, evaluate and report ESG data.
These sustainable finance solutions are seeing strong take up by managers, who are keen to meet both the growing investor demands for transparency on the impact of their portfolios and to streamline their regulatory compliance under emerging frameworks, such as SFDR.
The local policy agenda supporting Jersey’s ambitions as a sustainable Island is also moving at pace. Driven by – but independent from the government – a report from a citizens’ assembly was published in mid-2021 which made a number of wide-ranging recommendations that would help Jersey meet its 2030 carbon neutral targets – many of which were pertinent to the finance industry and have been taken on board.
While the landscape for financial services continues to be reshaped by the rise of sustainable finance, leading IFCs that can be nimble and adapt, that have had the foresight to put in place the right frameworks and that are committed to nurturing the right ecosystem, will be the ones that will most readily capture upside opportunities.
Jersey fully intends to be at the forefront of the sustainable finance revolution. The opportunity is clear but more than that, Jersey has a responsibility to leverage its expertise and capital to support the transition to an environmentally and socially sustainable global economy.
The aim is to integrate sustainable finance into everything we do, so that sustainably-motivated lending and investments are the norm in an environment where ESG does not stand alone as a distinct service line but rather underpins our proposition and defines the impact we make as an IFC.
We are under no illusions that to do that, Jersey Finance needs to respond to the speed of change and act now. With a detailed plan to guide us, we are well placed as a jurisdiction to capitalise on Jersey’s strengths as we work together to support the growth of sustainable finance and its contribution to environmental and social change.