Simplicity is key for sustainable investment

27 April 2021

Kate Hodson, Partner and Head of ESG Funds at law firm Ogier in Hong Kong, says keeping it simple was the key message from a joint webinar between WE ARE GUERNSEY and the Hong Kong Green Finance Association.

Guernsey has seen an increasing flow of business with Hong Kong in recent years, particularly in private wealth.

The two jurisdictions also share a leadership position in green and sustainable finance. Both are members of the United Nations’ Financial Centres for Sustainability network and WE ARE GUERNSEY linked up with the Hong Kong Green Finance Association (HKGFA) for a webinar on funds structuring and the financing of sustainability.

It is impressive to see the progress that both jurisdictions are making as centres of green and sustainable finance.

The learnings that I took from our chat on the webinar with Tracy Wong Harris, Deputy Secretary General at the HKGFA, were the need to keep things simple – we can take inspiration for that from what is happening with green investments on the bond market – and to learn to do all we can to avoid concerns about an ’explosion’ of reporting demands, which could potentially create confusion in the market.

The development of this sector in Hong Kong has been rapid over the past couple of years, fuelled by a mix of green finance policy enhancements, strong project financing and seeking to meet investor demands for environmental, social and governance (ESG) across Hong Kong and China. Recently the Securities and Futures Commission (SFC) of Hong Kong issued a consultation paper suggesting changes that would require fund managers to consider climate-related risks in their investment and risk management processes, thereby looking to align the Hong Kong funds industry with other international developments.

The market in the global financial centres pioneering these developments is clearly poised for a wall of new capital flows.

We have to look at ways to unlock this fresh capital, and we can learn from the experience of the bond market. But we can’t stop there, we need to look at all areas of the finance supply chain, and the SFC’s latest move shows that this is the direction Hong Kong is headed.

Certainly, the bond market is at the more mature end of the green and sustainable finance wave. In Hong Kong at the end of last year, total green bond issuance was HK$26 billion. The Hong Kong government has issued its first HK$1 billion green bond, which was oversubscribed four times, and it has since announced plans to issue a further HK$66 billion over the next five years.

Hong Kong’s green bond programme seeks to demonstrate government support for the sector, position the jurisdiction as a global market leader and set a benchmark for green bond products.

Aside from encouraging market developments, we also hear concerns that the complexity of the ESG, green and sustainable finance landscape could cause confusion and create extra costs.

ESG reporting has, for some, grown from a page of the annual report to 20-30 pages, or even a separate report, says Guernsey-based Kevin Smith from fund administrator Ocorian. Other challenges for the sector include increasing reporting demands on portfolio companies, and the subjectivity in the process, driven by a lack of a global standards, which is an issue raised worldwide.

“There are so many taxonomies and principles out there, different for each region, so it's really difficult for the investors themselves to know and to get a clear picture of what's going on across countries across funds and across different regions,” he said on our webinar.

A key part of Guernsey’s contribution to the debate has been the development of the Guernsey Green Fund, the world’s first regulated green fund, which was introduced to the market in 2018.

The product has created interest from managers worldwide, attracted by its simplicity, transparency and robust nature, and the ability to structure further, including sidecar arrangements and co-investment.

The first such Green Fund manager, ADM Capital, which is split between the UK and Asia, reported that its fundraising was enhanced when it went out to investors with the backing of Green Fund status.

Guernsey’s combination of simple, flexible private fund regime, the respected Green Fund regime, and private wealth advisory expertise can provide a winning combination for private investors looking to invest sustainably.

To view the webinar in full, go to: https://www.weareguernsey.com/finance-events/2020/hong-kong-masterclass-funds-structuring-and-financing-sustainability/on-demand/

In association with the UN’s Finance Centres for Sustainability, Guernsey Green Finance will be hosting its annual Sustainable Finance Week in June. A fixture in the private wealth and sustainable finance space the event will be bringing together global policy makers, opinion formers and professionals from across the private wealth and sustainable finance to discuss private capital financing sustainability against the backdrop of CoP 26 later in 2021.

This article first appeared in STEP Journal, Issue Six, 2020.

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