Reflections from a Sustainable Finance event with Jersey Finance
Working in conjunction with our Jersey office, Greenbank’s senior ethical, sustainable and impact researcher Sophie Lawrence was a guest speaker at a recent Jersey Finance event called “Sustainable Finance: A Focus on ESG and Trustees."
Jersey Finance is the promotional body of the finance industry in Jersey. It believes that Jersey, as a leading international finance centre, has a responsibility to leverage its expertise and capital to support the transition to a more environmentally and socially sustainable global economy. Therefore, a year ago it set an ambitious sustainable finance strategy for Jersey.
The event focused on the alignment between sustainable investing and the fiduciary duties within Jersey’s private wealth structures. Here are Sophie’s key takeaways from the event:
- The annual financing gap for the United Nations Sustainable Development Goals has almost doubled to US$4.2 trillion since pre Covid-19. Financial centres can play a critical role, acting as natural nodes that concentrate different market components and spread innovative solutions.
- According to the Saltus Wealth Index, UK investors aged 18-24 are over three times as likely to invest in ESG, green and impact funds than those aged 65+. Millennials will also inherit up to US$59 trillion between now and 2060, creating the largest intergenerational wealth transfer in history.
- Some key trends in private wealth for integrating ESG considerations have been the effect of the pandemic, the growing influence of the next generation, recent economic successes of clients giving rise to unprecedented wealth events, more scrutiny of professional advisers and some “ESG fatigue” created by information overload.
- The concept of ‘legacy’ for families is fast-evolving. Emotional factors such as love, respect, fun and humility are increasingly featuring and so too is the concept of responsibility for people and planet, alongside profit.
- Standards, regulations and laws are all playing a key role in shaping sustainable investment. For example, there are collectively over 255 regulations to improve the management of sustainability risks and increase sustainable capital flows. The most applied regulations are disclosure on environmental topics.
- Poor data quality and availability, and a lack of ESG talent and skills, remain the two most cited barriers to the advancement of sustainable finance.
- The incorporation of ESG issues into investment analysis is increasingly being understood and recognised as within the scope of an investor’s fiduciary duty. A key shift to have taken place is that integrating material ESG factors now has the potential to create the best financial returns for beneficiaries. For example, physical and transition risks related to climate change can lead to an erosion of financial value or “stranded assets”.
- If there are differing views among trust beneficiaries there are possible solutions available, such as segregating the trust fund. The first step should be a discussion about sustainable investment options with investment managers / advisers.
- Jersey is ahead of the curve in cementing the position that “benefit” means more than “financial benefit”. A Jersey Royal Court case in 2021 defined “benefit” more broadly than simply financial benefit. It was decided that it may include “the application of trust monies to provide social or education benefits.” This has been adopted previously in cases of a similar nature in Jersey, including a case in 1969.
- Financial institutions are increasingly becoming B Corporations. This is part of a wider shift from shareholder governance to stakeholder governance. A B Corp is a business that has been evaluated and certified by the non-profit B Lab across five key categories: corporate governance, treatment of workers, impact on community, impact on environment and treatment of customers.
"It does not come as a surprise that poor data quality and a lack of ESG talent remain the biggest barriers to action. Since Greenbank’s inception in 1997, we have grown an in-house ethical, sustainable and impact research team to help overcome this challenge."
It does not come as a surprise that poor data quality and a lack of ESG talent remain the biggest barriers to action. Since Greenbank’s inception in 1997, we have grown an in-house ethical, sustainable and impact research team to help overcome this challenge. This allows the team to scrutinise multiple different datasets as part of the bottom-up analysis that it undertakes on companies, including NGO data, 3rd party ESG data, company reports and daily news monitoring. We also partner with over 15 NGOs in the wider responsible investment community, which allows the team to access additional datasets on different ESG issues, from ‘health and nutrition’ to ‘access to medicine.’
The recent crystallisation of an expanded view of fiduciary duty is also welcome and Greenbank strongly support the view that integrating material ESG factors has the potential to create the best financial returns for beneficiaries. This is strongly aligned with Greenbank’s core investment belief that companies providing solutions for a changing world, while also demonstrating strong social and environmental management and good corporate governance, are likely to be sound long-term investments.
You can find out more about Greenbank’s thinking on these and other issues here.