The Commission has developed a Sustainable Finance Approach to demonstrate its commitment to develop sustainable finance through regulatory tools and support the finance sector through transition towards a low carbon economy. The Commission recognises the importance of the COP21 Accord in Paris, which stipulates that further finance flows into green investments are consistent with pathways towards low greenhouse gas emissions and climate-resilient development. The Commission considers that both global and local financial sectors are beginning to transition towards a greener world and that the Commission should co-operatively support that process.
The Risks of Climate Change
The Commission is beginning to evaluate how climate change and wider environmental issues may affect the licensees that it supervises. Licensees may face emerging physical, transition and liability risks in the face of climate change and the Commission will consider these risks as they develop. It is important that licensees understand the risks that might be facing their businesses and mitigate those risks effectively. Additionally, boards of licensed firms may wish to consider these emerging risks and understand how they might affect their firm.
In order to mitigate or slow the effects of climate change it is estimated that significant investment is required worldwide. The mobilisation of capital to green projects is clearly key to the transition to a low carbon economy. This is one of the reasons the Commission introduced the world’s first green fund - the Guernsey Green Fund.
The way in which firms may be affected by climate change will depend on their business model and function within the economy. For investment, fiduciary and pension firms, entities with exposure to so called “brown” assets, such as oil or mining stocks, may find it increasingly difficult to find service providers who will deal with those assets. Stakeholders worldwide will need to consider whether they have a capacity gap in understanding the risks of climate change and the expertise to understand new and emerging products and asset types under the shift towards low carbon assets.
Banks and insurance companies have a key role in allocating capital and managing risk respectively and both may experience the effects of climate change in different ways. Banks may experience higher levels of credit risk through exposure to mortgage portfolios that have been subject to natural disasters. Banks may choose to reduce their risk appetite in order to protect themselves from the effects of climate change. Insurance companies may be exposed to risks on both sides of the balance sheet; assets could become stranded or subject to climate-exposed areas, whilst insurance policies may generate claims with a higher frequency than expected.
There may be other risks that firms are exposed to that are not listed here, which boards may wish to consider as the world transitions to a low-carbon economy. The Commission will continue to monitor and assess the risks to which its firms are exposed in line with its policy of risk based supervision.
The Commission is engaged with other regulators to develop awareness, understanding and capabilities on how to respond to climate-related risks. The Commission contributes to the development of proportionate standards to support the finance industry in its response to climate change.
Network for Greening the Financial System (“NGFS”)
The Commission became a member of the NGFS in 2019. The NGFS is a network of central banks and supervisors who share best practices and contribute to the development of environment and climate risk management in the financial sector. The NGFS also supports the mobilisation of capital for green and low-carbon investments in the broader context of environmentally sustainable development.
Taskforce for Nature-based Financial Disclosure Forum ("TNFD")
The Commission joined the TNFD Forum in May 2022. The TNFD was established to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, with the aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
Sustainable Insurance Forum (“SIF”)
The Commission became a member of the SIF in 2018. The SIF is a network of leading insurance supervisors and regulators seeking to strengthen their understanding of and responses to sustainability issues for the business of insurance. It is a global platform for knowledge sharing, research and collective action. The Commission contributes to ongoing work streams of the SIF and learns from the expertise within the network to develop its understanding of sustainability within the insurance sector.
The Commission has been a member of IOSCO’s Sustainable Finance Network (“SFN”) since February 2019. The SFN facilitates the sharing of information, knowledge and experiences related to sustainable finance issues. It acts as a vehicle for carrying out collaborative work on common regulatory and supervisory issues and acts as the IOSCO central point for dialogue and exchange of views with other bodies in this area.
United Nations’ Financial Centres for Sustainability (“UN FC4S”)
Guernsey joined the UN FC4S in 2018. The Network includes other leading financial centres including London, Frankfurt, Paris and Zurich, who share an objective to exchange experience and take common action on shared priorities to accelerate the expansion of green and sustainable finance. Guernsey’s participation is facilitated through Guernsey Finance
The Commission continues to assess its response to climate-related risks and has published various articles and papers on different subject areas in order to improve its framework. To view these documents, please view the following links.
- The Natural Capital Fund Consultation Paper
- The Anti-Greenwashing Consultation Paper
- Membership of TNFD Forum
- Updated Finance Sector Code of Corporate Governance
- The NGFS Membership
- Discussion Paper on Green Insurance
- CP Green Insurance
- Feedback Statement on Green Insurance Discussion Paper
- The Guernsey Green Fund
- The Guernsey Green Fund Rules
- Spring Green Consultation Paper
- Thematic Review of the Guernsey Green Fund Regime
- Occasional Staff Paper: 'Cos Money Doesn't Grow On Trees
Greening the Commission
The Guernsey Financial Services Commission's pledges for 2021 - 2023
At the invitation of the Network for Greening the Financial System, of which the Commission is a member and in relation to COP26, the Commission has made the following three pledges for 2021 - 2023:
- To engage actively with life insurers interested in accessing the Commissions’ green life regulatory regime;
- To afforest its land in Scotland, supported by Scottish Forestry;
- To extend the Commission’s regulatory regime to include sustainable funds in addition to the current coverage of green funds.
Apart from the above, the Commission will continue to help the Bailiwick pursue its climate change mitigation programme – as set out generally on this page.
Doing Green and Being Green (Extract from the Director General’s statement in the 2021 Annual Accounts)
On the environmental front, having purchased two electric bikes in late 2021 to help staff travel to meetings in a more environmentally sustainable manner, we will continue to take forward our sustainability programme with the intent of planting more than 50,000 trees at our Angus site in the first half of 2022 to start us on a journey towards full offsetting of our greenhouse gas emissions. Conscious that sustainability is about more than greenhouse gas emissions, we are undertaking the most ecologically sensitive planting that is compatible with being a commercial forest. We also intend to undertake further work in conjunction with counterparts in Guernsey Finance on more financial services focused environmental initiatives to complement our green insurance capital and Guernsey Green Fund regimes.
Key elements of the Commission’s Sustainable Finance approach are as follows:
- The Guernsey Green Fund,
- The Natural Capital Fund,
- A regulatory green discount for Life Insurer assets,
- Inclusion of a climate change requirement with the Code of Corporate Governance,
- An internal question bank for supervisors,
- Purchase of a forest site out of the Commission’s own reserves,
- A green pension offering for staff (13.5% take up in 2021),
- A shift of the Commission’s equity investment portfolio towards a more sustainable strategy,
- Electric bikes.