Jersey for Good – A Sustainable Future

Sustainable Development Goals

Sustainable finance is about re-wiring the financial system to help accelerate solutions to a wide range of complex, interconnected global issues – from biodiversity loss and climate change to inequality and poverty. These challenges are best illustrated by the 17 United Nations Sustainable Development Goals (SDGs).

A mounting tide

There’s increasing awareness that finance must play its part in tackling the long-term environmental, social and governance challenges the world faces. Many people already recognise that the way the financial system has traditionally allocated resources has contributed to the climate emergency. And there’s a greater focus on the role finance plays in depleting natural capital by funding activities that lead to the degradation of ecosystems and over-exploitation of resources. These global challenges are also giving rise to social issues such as inequality, conflict and insecurity that have the potential to destroy value, and the financial system is increasingly being asked to provide solutions.

This leads to growing pressure for the finance industry, along with the real economy it serves, to adapt in a way that allows us to live within our planetary boundaries while delivering a decent standard of living for all.

Strong business signals

There are strong signals from the market that allocation of capital is undergoing a significant shift towards all forms of sustainable investing, from impact investing to ESG-thematic funds and specialist debt instruments.

Alignment of value and values

With growing evidence that sustainability is a driver of long term value, investor preferences are shifting and demand for transparent products and standard disclosures is increasing. Long-term ESG investment strategies can yield better returns for investors, so sustainable investing doesn’t have to pose a headwind to their portfolios.

This shift has resulted in greater scrutiny of ESG credentials, putting companies under pressure to align corporate purpose and values, while risk and return metrics are increasingly incorporating natural, social and human factors. How we see fiduciary duties is also changing on a global scale, with the UN Environment Programme’s Finance Initiative noting that “investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge.” The effect of this alignment is to bring sustainable finance into the mainstream.

A shift in political focus

A shift in political focus Efforts to bring about transformational change in the global economy, including the UN’s SDGs and the Paris Climate Agreement, are leading to policy interventions and regulatory change. Most significant from Jersey’s perspective is the European Union’s action plan for
financing sustainable growth, together with the UK’s strong policy actions such as TCFD-aligned disclosures becoming mandatory across the UK economy by 2025. These extra regulatory measures, which are rapidly gathering pace, mean that compliance with sustainability standards is becoming part of the finance industry’s licence to operate.

The global pandemic

COVID-19 has brought into sharp relief our reliance on natural systems and accelerated the pace of change. It has also focussed attention on corporate purpose and values, serving as “the first real proof-point for sustainability, underlining the fact that ESG investing […] can future-proof investments and in some cases boost returns, all while helping to shape a better future.” (UN Principles for Responsible Investment).

Increasing standardisation

In recent years we’ve seen a proliferation of standards for the finance industry in the field of sustainability. Some of these standards are now gaining real momentum, accelerated in some cases by regulatory changes that will increasingly make their uptake mandatory.

Many asset owners and managers have signed up to the Principles for Responsible Investment (PRI), which was created in 2006 with the backing of 100 signatories. It now has more than 3,000 signatories, managing more than US$100 trillion of assets. Signatories are committed to integrating ESG considerations into their investment analysis and decision making.

Banks and insurers are also embracing sustainable finance. The Principles for Responsible Banking (PRB) were set up in 2019 and already have almost 200 signatories, representing over a third of the global banking industry. As of October 2020, more than 1,500 organisations representing every major type of financial market participant had expressed support for the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

Green finance on a green Island

For Jersey to become a globally recognised sustainable finance centre, the Island itself has to change. This will require supportive collaboration between the finance industry, the Jersey Financial Services Commission (JFSC), the Government of Jersey and, to an extent, the people of Jersey. As wealth is transferred to the next generation and expectations of finance change, Jersey’s finance industry must put in place positive actions on sustainability to enhance its appeal. A consistent strategy and policy direction, with a strong government target for carbon neutrality and a finance industry focus on sustainable investment, would provide a powerful message that Jersey is tackling climate change and broader SDGs at local and international scales and would be attractive to a wide range of clients such as institutional investors and family offices. It will be important that key stakeholders are aware of and adopt sustainable finance market and product standards. Jersey will need to monitor and align to emerging regulations to ensure that it eliminates the risk of greenwashing and retains access to key markets. Understanding and adhering to highquality sustainable finance standards and regulations, such as the EU Taxonomy and other frameworks, will increasingly form part of the financial diet of advisory services and finance. We can help to build this understanding through guides, webinars and briefings, engaging in best-practice forums and passing on the knowledge we gain to our Members. It will also be important for Jersey to consider whether it has the right incentives in place to encourage the transition to sustainability across all sectors of economic life, including the finance industry. Such incentives are already in place in some competing jurisdictions.

Improve perception and credibility

Effective communication of existing activities and credentials to external stakeholders will result in an improved perception of Jersey’s sustainable finance capabilities. Strong performance in external rankings such as the Global Green Finance Index (GGFI) requires strong country ESG credentials as well as industry expertise. This requires Jersey to better demonstrate the credentials it already has, as well as clearly articulate the vision it’s seeking to achieve. Measuring performance against independent rankings and frameworks will help to build on and reinforce Jersey’s reputation as a leading IFC and a good global actor. Regular reporting on the current status of Jersey’s sustainable finance market would help to position our Island as a leading sustainable IFC, communicating with key stakeholders to track progress against the delivery of a common strategy. Engagement with external bodies, such as the Network of Financial Centres for Sustainability, can help us evaluate Jersey’s position and set measurable goals in line with global best practice.

Increase capacity

Jersey has a responsive regulator, a wide range of flexible structures and excellent legal, accounting and anti-money laundering (AML) service providers. This bedrock needs to be upskilled across the board to prepare for and take advantage of the global trends in ESG and sustainable finance. A strategy to upskill and increase awareness will also drive innovation in Jersey in terms of new products and services that complement our ecosystem and leverage our existing specialisations in fields such as fintech, risk management and governance of alternative investment structures. Each sector of Jersey’s finance industry will have its own needs and face its own challenges. These sectoral differences must be clearly identified as part of any strategy. There’s also a need to explore how external investment mandates support or impede progress towards sustainable finance, with a focus on upskilling those who administer and service assets to ensure that they can proactively engage their clients and advisers as we transition to our vision and the goals of our two-year plan. At the same time, it’s important to recognise that many Jersey Finance Members are already well advanced on the journey towards ESG integration. These firms will also need appropriate support and recognition.

Jersey’s Pathway to Success:

A two-year plan to accelerate our journey towards a sustainable future

To help us achieve our Vision, we’ve developed a Pathway to Success that will cover the first two years of a longer-term phased approach leading up to 2030.

It will focus initially on making sure that there’s an appropriate level of knowledge and understanding within our finance industry, the JFSC and the Government of Jersey, and that the correct structures are in place to attract and retain sustainable capital. In the longer term, it will build on these foundations to deliver system-wide integration of sustainability in line with Jersey’s 2030 Vision.

The two-year Pathway to Success has been designed around five core tasks for Jersey’s finance industry and its key stakeholders. Jersey’s Pathway to Success: a two-year plan to accelerate our journey towards a sustainable future can be found at the top of this page.