01 Sep Is your next fund a green one?
Is your next fund a Green one?
It is undeniable that the impact of climate events is changing the way conscientious investors make their investment decisions. It is therefore not surprising that a platform such as the Guernsey Green Fund provides accredited access to green investment opportunities. Ultimately, investors will take comfort in knowing that the objective of a Guernsey Green Fund is to provide “a trusted and transparent product that contributes to the internationally agreed objectives of mitigating environmental damage and climate change.” – excerpt from GFSC website.
At the date of writing, there are 13 Green Funds shown on the GFSCs website. Given our current global goals, and that many service providers are actively including ESG focused principles of responsible investment into their decision-making, there seems a clear opportunity to consider making your next fund a green one.
How do you obtain Guernsey Green Fund status?
There is little we can add to the GFSCs flow chart on the topic, however for completeness:
1) Set up one of the tried and tested regulated fund classifications offered in Guernsey. E.g. Class A, B, Q Authorised funds, or Registered funds or PIFs. The funds can be either open or closed-ended (as appropriate).
2) Demonstrate compliance with the Green Fund Rules, being:
a) Make the necessary notifications to the GFSC.
b) Meet the disclosure/reporting requirements.
c) Comply with the elected green criteria
3) Choose how the fund will achieve its green certification (route 1 or 2)
How should the fund’s portfolio be structured to achieve Guernsey Green Fund status?
1) Most notably, the fund’s aim is to spread risk with the ultimate objective of mitigating environmental damage resulting in a net positive outcome for the environment.
2) 75% of assets by value must meet the green criteria (as set out in schedule 2 of The Guernsey Green Fund Rules, 2018 (the “Rules”)) with the remaining 25% not diminishing the objective of mitigating environmental damage, nor be in any of the excluded sectors set out in schedule 3 of the Rules (e.g. uranium mining for nuclear power or fossil fuel-based power generation etc).
3) Must only invest and abide by the limits of its principal documents or prospectus.
The dark section above shows similarities across fund products.
What are the Green Criteria?
The elected green criteria which the fund must comply with is ‘the Common Principles for Climate Mitigation Finance Tracking’. The categories of investment included are:
1) Renewable energy.
2) Lower-carbon and efficient energy generation.
3) Energy efficiency.
4) Agriculture, forestry, and land-use.
5) Non-energy greenhouse gas reductions.
6) Waste and wastewater
8) Low-carbon technologies
9) Cross-cutting issues
Each of the above are further sub-categorised and examples are provided in appendix 1 of schedule 2 in the Rules.
What is the Green Certification?
It is a requirement of the Rules that the fund be certified that the underlying investments meet the green criteria, and this can be achieved in one of two ways:
Route 1: would require the designated administrator to make a declaration providing a certificate prepared by an independent third party with adequate expertise to ensure their certification is a fair reflection of the funds ability to meet the green criteria. Examples of such third-party advisors are qualified audit firms or rating agencies.
Route 2: also known as self-certification, requires a GFSC licensee to make a declaration that the fund meets the green criteria. Practically, this will be a signed document provided by the designated administrator to the GFSC.
Either route achieves the same end, and the choice will be driven by your circumstances.
With the industry poised for growth in this space, please get in touch with the team at Obsidian if you would like to explore this further.