Best of Both Worlds: Structuring Sustainable Funds for International Investors in the CI

The Channel Islands have long-recognised the importance of enabling access to and ensuring equivalence between international markets and are well positioned as enabling platforms, facilitating access to products that meet a variety of investor sustainability preferences.

With fast-changing ESG disclosure regulations in different markets, it is increasingly important for funds to take a strategic approach to compliance and reporting in order to meet requirements most effectively. For example, we are expecting further updates this year on how the FCA’s Sustainable Disclosure Regulation (the UK’s forthcoming product labelling regime, and which is not directly equivalent to the SFDR) will apply to overseas products. A Jersey or Guernsey neutral base supports a strategic multi-jurisdictional approach, and their agile and skilled financial services industries are well-placed to provide support. Importantly, this concept of interoperability with international frameworks applies to the full spectrum of available products, including but not limited to Certified Funds, Fund Services Businesses, Investment Businesses and Private Funds in Jersey; and Registered Funds, Authorised Funds and Private Investment Funds in Guernsey.

Guernsey has also introduced its own green investment products that are deliberately intended to align with internationally recognised frameworks. The Guernsey Green Fund (GGF) is a designation granted to funds that mitigate environmental damage, consistent with current and emerging standards such as the SFDR. The Natural Capital Fund designation is granted to funds that direct resources towards efforts to preserve and rebuild the planet’s natural capital, and its criteria align with internationally recognised frameworks such as the UN’s Post-2020 Global Biodiversity Framework, the UN SDGs and the EU Taxonomy.

The islands have not, however, disregarded the need to address sustainability risks from a jurisdictional reputation perspective. Both islands have anti-greenwashing legislation to address mislabelling risk of sustainable finance products and services, but without prescribing templates for disclosures – allowing funds to meet their obligations using existing templates (such as those required under the SFDR). The Guernsey Financial Services Commission (GFSC) has also amended its Code of Corporate Governance to ask companies to consider the financial impact of climate change and, where appropriate, make disclosures, again without prescribing templates but encouraging alignment with international best practice. We anticipate that any future sustainable finance regulatory developments in the Channel Islands will be similarly flexible and underpinned by global standards.

Non-EU AIFMs arguably have an advantage over EU AIFMs, as non-EU AIFMs are only in scope of the SFDR in respect of each fund they market through the NPPR. This means they’re only required to make fund-level disclosures in respect of funds that are registered for marketing in the EU; whereas EU AIFMs must comply with additional manager-level provisions such as publishing information about the integration of sustainability risks in their investment decision-making process on their websites.

Another advantage of using Jersey or Guernsey arises when a manager already has existing funds based here. The same administrators can service both SFDR and non-SFDR products; thereby creating economies of scale that can lead to reduced costs, retention of institutional memory and time savings. This allows managers to use the Channel Islands as a “one-stop shop” for both SFDR and non-SFDR products.

Centres for sustainable finance are only credible if they operate in a sustainable manner from a sustainable location; and with this in mind, both islands’ governments have made domestic commitments to net zero by 2050. On a practical level, the grid carbon intensity of both islands’ electricity systems benefits from low carbon electricity from France and is already roughly only a tenth of the UK’s current supply. The transition to a green economy is already well underway on both islands, as we have previously highlighted in our Green Jobs Barometer for the Channel Islands.

Both islands are members of the UN Financial Centres for Sustainability (FC4S) Network and several other international groups sharing experience and taking action to accelerate sustainable finance. They have also committed to ensuring they have the high-quality infrastructure needed to service the increasing demand for ESG-oriented products, and there are growing communities of skilled ESG professionals on both islands.