Private equity (PE), as an industry with its focus on real investment in real assets, is well positioned to assist the transition to a carbon neutral economy.
Guernsey is a leading centre for private equity – both as a domicile for PE funds and for their administration – and the jurisdiction that launched the world’s first regulated green fund product, the Guernsey Green Fund. We have noted that although there have been numerous policy moves in the investment industry on ESG standards, notably from the UN and OECD, there remained a lack of guidance for the private equity industry.
Working with a group of local private equity professionals, we sought to create a set of principles to bridge this gap, are just being published.
The voluntary principles – we have no desire for more bureaucracy and burden – aim to succinctly provide key parameters that must be achieved for a private equity firm to be regarded as “green and sustainable”, and to guide those general partners and limited partners prepared to contribute towards the transition to carbon neutral while seeking a return on investments.
The principles are structured as a two-pillar framework – one of the process, comprising governance, culture and transparency, and the other consisting of portfolio, covering risks assessment, assets, taxonomy, measurement, and reporting.
Recent research from Guernsey Green Finance, conducted with the island’s fund administrator community, showed that sector has largely adopted the rapidly-changing social narrative, demonstrating a clear understanding of the role financial services have in mitigating the climate emergency, and that returns today are inextricably linked to that approach.
Guernsey’s government will soon set out an action plan for climate change, and all of us involved with Guernsey Green Finance are looking forward to the publication of an ambitious but credible target for carbon neutrality for Guernsey. The island’s carbon dioxide emissions, according to 2018 data, were on a par with the UK at 5.7 tonnes per capita, better than most EU member states, and far superior to some key finance centre competitors.
Our record on strategic action on climate change is similarly steady: the listed assets under management within our regulated green fund regime is already more than 40% of the UK Green Finance Institute’s claim for “green” listed funds, and a recent survey established that over 75% of Guernsey AUM are administered, managed or sponsored by firms which are signatories to the Principles of Responsible Investment (PRI).