Sustainable finance: Island must ‘do more if it wants to compete’

PwC Channel Islands sustainability services leader Alison Cambray and senior manager of sustainability services Tori Davis Picture: DAVID FERGUSON (37890900)

Incentives are needed to attract sustainable funds to Jersey, according to two experts from PwC. Emily Moore reports

WHY should we care about sustainable finance in Jersey?

It is a question posed in a video on PwC’s website and one which is particularly relevant as the deadline for responses to the government’s consultation paper on a policy and regulatory framework for sustainable finance in Jersey is fast approaching.

It is also a subject about which PwC Channel Islands sustainability services leader Alison Cambray and senior manager of sustainability services Tori Davis feel very passionate.

“I have been involved in this area since Jersey Finance spearheaded the Jersey For Good initiative in 2021, which set out the ambition for the Island to be the leading sustainable international finance centre in the markets we serve,” said Alison.

“With the support of government and the ambition of the industry, this programme started out strongly in terms of raising awareness of this key topic and developing skills. But to give us all the ingredients that we need as a jurisdiction to achieve that goal, we also need that policy and regulatory framework.”

And while the consultation is, says Alison, unlikely to have come as a surprise to those in the industry, she is urging anyone who has not yet responded to do so before Friday’s deadline.

“The Moneyval inspection meant that it wasn’t the right time to launch this consultation before but now is the perfect opportunity for all those in the industry – not just those already involved in sustainable finance – to have their say on what Jersey’s level of ambition should be and, most importantly, what businesses need in order to fulfil that ambition.”

In the consultation, three possible levels of ambition are listed – compliant, moderate or advanced. But before agreeing a level, Alison says that there is still work to be done “demystifying” some of the concepts within the paper.

“There are still some misunderstandings about what sustainable finance is and the risks we could face if we don’t keep up with international expectations,” she said. “Sustainable finance is all about the £1.3 trillion assets under management in Jersey, the economic activities they are financing and the extent to which these activities are supporting the transition to the sustainable and inclusive society and planet that we need and aspire to have.

“While practices such as recycling are still important, this is about the far greater influence that the Island can have through its role as a conduit of capital.”

There are, adds Tori, two sides of the coin when it comes to sustainable finance.

“As with so many things, there is both risk and opportunity,” she explained. “The failure to achieve sustainability-related objectives creates systemic risks, including climate and nature risks, which present a threat to business. One side of sustainable finance therefore focuses on how you can protect investors, consumers and the public from the risks around financial products and services.

“But there is also another side. Having protected your financial operations from those risks, you then need to think about the opportunities to redirect the capital towards those businesses and activities which are doing good or those which need to transition but do not currently have the financing they need to make that change.

“The real-estate sector, for example, offers enormous and really powerful opportunities for transition financing, as we know that 40% of carbon emissions come from the built environment.”

“We have to look at this in terms of the opportunity,” added Alison. “The finance industry here has always been alive to global trends and making sure that it adapts and harnesses the opportunities they present. Sustainable finance is no different. We know that $4trn needs to be invested every year in sustainable development and, of that, 70% needs to come from private finance. That presents a tremendous investment opportunity which Jersey is beginning to harness, but we are not doing this systemically across the Island. Therefore, if we do not put in place the enabling conditions to help the industry to capture that potential, we are leaving a huge growth opportunity on the table.”

While that depicts the macro-opportunity, Alison says that the Island risks losing business if it does not have the right framework in place.

“Jersey is a centre for alternatives and we expect the proportion of alternative investment funds that will be sustainable to account for 28% of the entire global market in the next few years,” she said. “If we are not ready to harness this opportunity, those funds could go elsewhere. Similarly, private wealth is another big area for the Island and future clients will be seeking to invest with purpose. We need to be ready and visible, so that when people are considering their options, they are thinking about Jersey.”

When it comes to the enabling conditions required, Alison and Tori say that these fall into two categories, which have to run concurrently.

“We need conditions to protect and promote the industry,” said Alison. “The protect side is all about making sure that, as a jurisdiction, we are not overexposed to risks such as climate risks. While we already have some anti-greenwashing legislation in place, this needs to be extended to give greater transparency to investors.

“While there is a myriad of sustainable finance regulation globally, we need to keep up with international expectation, so that we do not lose access to our core markets. This does not, however, mean introducing a one-size-fits-all approach across the industry. We need a framework which allows us to apply risk-based approaches to the parts of the industry where it really matters. We also have to be alive to the fact that, as an IFC, we need to be open and agile, and we shouldn’t add layers of regulation which make it harder to do business.”

On the promote side, meanwhile, Alison says the Island needs to build on its work to “set out its stall about what it offers”.

“That promotional side should be backed by a target, something which puts us on the map and which is supported by investing in skills and capability,” she said. “We also have to remember that we are far from the only jurisdiction which wants to be the leading sustainable IFC, so we have to have some incentives and be really mindful about which areas we want to grow and ensure that we have the right structures in place to attract that business to the Island.”

And while on the UN FC3S assessment programme, Jersey scores well because it has declared an ambition to achieve net-zero and has some sustainability-related legislation already in place, the Island needs to do more, says Alison, to raise its sustainability credentials to attract this business.

“We’ve spoken to external gatekeepers about which jurisdiction they would choose for their next fund and while there are all sorts of reasons that those gatekeepers would choose Jersey, there is no compelling reason on top of the usual ones for them to pick the Island to launch a sustainable finance fund,” she said. “When you consider the incentives that some other jurisdictions are offering to attract them, we need to do more if we want to compete.”

This is why, she says, it is important for businesses and individuals within the industry to respond to the consultation, so that the Island’s level of ambition can be established and work on creating the necessary enabling conditions can begin.

“From our perspective, and the conversations we’ve had with clients and other industry members, we would like to see a high level of ambition agreed,” said Alison. “But the devil is in the detail and some enabling conditions are more important than others.

“As an IFC, it is important to maintain market access and ensure that we are not further complicating an already complicated international regulatory landscape. We need to find the right balance which enables us to both protect and promote the Island. We also have to be realistic. Some parts of the industry will focus on the compliance and risk management perspective while others will see it as an opportunity to grow and capture new funds. As a jurisdiction, we have to cater for all of that.

“I hope that, after the consultation, the government will set out a roadmap so that, if there are going to be changes, industry has plenty of notice of those changes. Alongside that, I really hope there will be a case for looking at funding for some of the incentives that might be required in a targeted and strategic way. We have to think about how, if the government sets aside funding to facilitate this, that would catalyse further industry support, as this has to be a joint government and industry activity.”

– Advertisement –
– Advertisement –