The UN FC4S Assessment Programme, developed by the UNDP-hosted Network of Financial Centres for Sustainability (FC4S) and PwC Paris, provides centres like Jersey with a globally-recognised tool for carrying out this type of stock take.
That is why in September 2021, Jersey submitted its first round of data under the Assessment Programme. The results of that assessment have since been aggregated with data from 28 other leading finance centres globally. The resulting fourth FC4S State of Play report has since been shared with global policy makers and helped influence leading international bodies such as the G20.
In mid-2022, Jersey also received its first personalised assessment report, developed by the FC4S knowledge team in response to the specific data we submitted.
As our initial two-year Pathway comes to an end and we work with our partners across industry, we want to take this opportunity to share some insights from this first FC4S report and explore how we can respond as an industry and a finance centre to the challenge of scaling up sustainable finance flows.
What is the FC4S Assessment Programme?
The aim of this assessment programme is to help identify areas where centres like Jersey can take action to improve their effectiveness in deploying capital to help meet the needs of the net-zero transition and the wider sustainable development agenda under the 17 UN Sustainable Development Goals (SDGs).
The assessment covers three key “pillars”: Institutional Foundations, Enabling Environment and Market Infrastructure.
Performance in these areas is benchmarked against a range of criteria and indicators of best practice for sustainable finance centres, with the finance centre’s alignment level in each key area rated 0 to 5 (where 5 represents full alignment to the requirements of a sustainable finance centre).
What Does Jersey’s First FC4S Report Tell Us?
This pillar explores the key institutions and ambitions that drive the development of sustainable finance within the financial centre. The key findings were:
- As a first respondent in 2021, Jersey positions in the middle tier, below the FC4S network’s median but within the same overall level of alignment (Level 2).
- Jersey was recognised in the report as having some strong features, including a range of activities associated with sustainable finance and a dedicated sustainable finance initiative, Jersey for Good, which brings together key stakeholders around a common roadmap.
- The reports notes that Jersey shares a number of common weak spots with other respondents around a lack of alignment with the SDGs and the net zero transition and suggests this should be a target area for improvement, nationally and within our sector.
This pillar maps the structures that support the scale-up of sustainable finance by providing rules and incentives and building capabilities. The key findings were:
- Jersey positions again in the middle tier of the FC4S Network, but within a lower alignment level (Level 1).
- The report notes the Jersey has fewer regulations that other centres for sustainable finance. However, it notes that as regards the measures we have taken against greenwashing, these measures involve specific requirements and extended scope, as opposed to comparable peers.
- This illustrates the robustness of Jersey’s emerging regulatory environment.
- Jersey scores lower than the median in a number of areas such as the regulation of Carbon Pricing – these are not necessarily appropriate for smaller specialist IFCs. However, on the broader topic of climate action, the report makes a number of helpful suggestions for improvement.
- Professional development and education are also noted as key drivers where Jersey needs to focus its efforts – particularly around advanced topics such as climate and ESG risks.
This pillar analyses how we are stimulating private market participants to actually mobilise capital in alignment with sustainable objectives such as net-zero and the SDGs. Takeaways include:
- The alignment level across all FC4S finance centres remains low (Level 1), with limited capital deployed sustainably and limited investment options.
- However, Jersey scored above the FC4S median, thanks to the performance of our banking and asset management sectors – giving us a “best-in-class” score for our regional cluster against indicators such as commitments to increasing sustainable investments and lending.
- Jersey was also recognised for its ability to gather quantitative data on volumes of sustainable finance in the banking and asset management sectors.
- In some areas of the market, Jersey scores less well. However, it is important to recognise that Jersey is not a generalist finance centre and should therefore focus on scaling up its sustainable finance flows only in key areas that align with our expertise and ambitions, such as ESG funds and debt capital markets.
Putting the FC4S Report Findings into Action
We have worked with the Sustainable Finance Steering Committee, made up of representatives from across industry, the Government of Jersey and the JFSC, to analyse the findings of this first FC4S report on Jersey as a sustainable finance centre.
Based on that analysis, we have developed a series of recommended actions for key stakeholders that would help Jersey develop its credentials and move towards achieving the industry sustainable finance vision:
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.
Actions for Financial Services Firms
To accelerate Jersey’s pathway to the 2030 Vision above, Jersey Finance member firms should consider the following actions as part of their strategy and planning:
- Make a net-zero commitment at an organisational level, backed by science-based targets. Where appropriate and material, in line with global frameworks, firms should consider whether this can be extended to their financed/administered emissions.
- Engage with clients on sustainability issues at all stages of the relationship in a way that is relevant to their business, objectives or investments, supporting client asset alignment to sustainability metrics.
- Integrate sustainability risks (e.g. climate) into risk management processes.
- Measure and where relevant report on principal sustainability impacts against an appropriate globally-recognised voluntary standard (e.g. TCFD).
- Become a signatory to a suitable framework that helps embed sustainability and the SDGs into strategy and activities: UN Global Compact, for example.
- Develop awareness and understanding of SDG alignment tools in relation to overall member firm activities and where relevant, for client assets too.
- Asset/Investment Managers to increase allocation of capital to strategies aligned with the FC4S AP criteria (sectoral exclusion, SDG impact, Net-Zero thematic etc)
- Banks to increase the deployment of sustainable funding in line with the FC4S AP criteria (e.g. sustainability-linked lending criteria, climate scenario modelling etc.)
- Fund managers to consider suitability of ESG labels for their funds.
- Share data on sustainable finance flows and alignment with sustainable objectives with JFL, JFSC and Government to support accurate industry measurement.
- Engage with Government on industry alignment to the Carbon Neutral Roadmap, support deployment of private sector finance for Net-Zero.
Invest in training and skills required. within their business to support both organisational and client sustainability needs.
Participate in sharing of best practice on sustainable finance with industry.
- Support the development by JFL of Jersey’s credentials by sharing case studies and examples of best practice in terms of driving capital towards SDGs and Net-Zero.
Actions for Jersey Finance
Recognising the need to keep building on the foundations established within the first two years of Jersey for Good, the next phase of action by Jersey Finance as an industry body should focus on:
- Broadening stakeholder engagement with our sustainable finance strategy and building industry consensus around Jersey’s role a platform for sustainable administration of investments.
- Encouraging and supporting members to take action in line with the industry recommendations above, by driving greater awareness and understanding of the key topics.
- Improving data collection and visibility ahead of the next round of FC4S assessment, expected to take place in 2023.
- Curate training and skills development for industry, liaising with providers and establishing partnerships where appropriate to develop Jersey-relevant content.
- Building international engagement and cooperation on sustainable finance, within the framework of FC4S and other key organisations.
- Develop communications that clearly articulate and promote Jersey’s credentials for sustainable finance in its chosen markets in order to attract greater sustainable financial flows to Jersey.
Actions for Policy Makers and the Regulator
As indicated by the FC4S report, the role for Government and the JFSC in delivering on the 2030 Vision is to continue to build on Jersey’s policy foundations, including the recent adoption of the Carbon Neutral Roadmap, the extension of the Paris Agreement to Jersey and the introduction of anti-greenwashing measures. The objective should be to create a supportive, enabling environment for sustainable finance that is suited to the Jersey context and industry ambitions, whilst being aligned to the global direction of travel. Coordinated action between the Government and JFSC in this regard is key, bringing industry along on the journey.
In particular, we look forward to driving industry engagement on the Government of Jersey’s planned 2023 consultation on a Policy Roadmap for Sustainable Finance in Jersey. This is expected to seek industry feedback on a range of measures including:
- Alignment as a finance centre to net-zero, including development of regulatory requirements around climate risk and reporting (extending, in the longer-term, to nature-related risk)
- Updates to the regulator’s approach and expectations in relation to sustainability-linked risk within the regulated financial sector, with a focus on clarifying governance requirements around climate risk
- Further developments to the rules around anti-greenwashing and investment labelling in line with emerging global standards
- Consideration of the global direction of travel for fiduciary duty in the context of ESG