Responding Positively to Increasing Demands for Sustainable Investment

By Maria McDermott Business Development, Asia, Jersey Finance

Sustainable finance has been on a journey of evolution both in Asia and across the globe and, in recent times, a series of factors are combining to fuel faster growth.

Informed by the UN’s Sustainable Development Goals (SDGs), focus has grown increasingly over a number of years on how re-wiring the financial system can help accelerate solutions to global issues, not only biodiversity loss and climate change, but other complex problems such as inequality and poverty. This shift in thinking is noticeable in the statistics. For instance, between 2016 and 2018 the value of sustainable investment assets managed globally grew 34% to more than US$30 trillion. (Global Sustainable Investment Alliance’s Review 2018)

During the last 18 months, the momentum has been further stepped up as a result of both the increasing visible evidence of climate change and especially by the pandemic; a factor which has given governments the difficult task of rebuilding economies while limiting further damage to the planet’s ecosystem. In terms of climate change, the COP26 conference in November may prove to be a pivotal event in tackling the problem.

Mainstream

The impact of all these developments is to bring sustainable finance further into the spotlight and move it increasingly into mainstream public consciousness.

In relation to sustainability, commentators have suggested COVID-19 has sharpened the focus on environmental, social and governance (ESG) criteria and practice within financial services, embedding sustainable finance as a strategic priority, and adding greater sophistication in an area where there is still plenty of scope for progress in terms of weighting across the E, S and G strands, as well as better measurement and evaluation.

Supported by improvements in ESG standards, greener investments are becoming an increasing priority as the industry responds to investor demand for portfolios and investments that make a positive impact.

There is plenty of evidence for this acceleration in ESG investing. According to recent research from Deutchse Bank and GSIA, ESG assets are forecast to exceed US$100 trillion by 2028* and US$150 trillion by 2034, and already one in every three US dollars currently invested takes account of ESG factors (Forum for Sustainable and Responsible Investment (2020)). Meanwhile, another encouraging statistic has been revealed in analysis from S&P Global markets intelligence, which found that during the pandemic, ESG funds were found to have achieved gains of up to 20.1%, outperforming traditional funds.

Asian markets are showing intent also. Studiesshow that the Asian wealth management community, especially the next generation (NextGen), have embraced the move in that direction. In research Jersey Finance conducted last year in association with the Asian financial publisher Hubbis, entitled ‘The Evolution of Wealth Management in the World of Islamic Finance - Views from the Islamic Finance Wealth Management Community’, 69% of respondents indicated that between a quarter and three quarters of the NextGen financial investment portfolios will be centred on ethical, impactful or ESG investments. While within the funds sector, asset managers are increasingly reviewing their products, domiciles and fund administration solutions in line with the critical success factors demanded by sustainable investing.

International finance centres

International finance centres (IFCs) have a vital role to play in meeting these new objectives, including within Asian markets, provided they respond to the global shift towards a greener, more inclusive economy and they reflect this new ESG thinking.

By way of example, Jersey, one of the long established IFCs and one with strong links with Asian investors, has recognised the importance of embedding sustainability into its approach for some time. At a government level, it has taken part in the United Nations ‘United 4 Smart Sustainable Cities’ initiative and is pursuing a carbon-neutral strategy. We have responded also as an industry and implemented a new ten-year strategy with the ultimate objective of being recognised by clients, key stakeholders and other partners as the leading sustainable IFC in the markets we serve.

Collaboration

The intention going forward is to build partnerships with stakeholders, to integrate sustainability across sectors, to enhance collaboration, implement independent performance measurements and to make investment in the depth of skills needed even more of a priority to help in meeting changing investor strategies. Collaboration with government, regulator and other parties will be vital in meeting our ambitions.

For example, as ESG priorities accelerate, investors will have mounting concerns about the dangers of green washing and will want reassurance about how their investments are deployed. Jersey service providers, working with the digital industry, are developing the measurement and analysis tools necessary which will provide investors with the confidence they seek.

To further support this new strategic approach, Jersey’s financial regulator, the Jersey Financial Services Commission, recently made changes to a number of its Codes of Practice, with the aim to counteract the potential for greenwashing by supporting sustainable finance through a commercially viable disclosure regime.

New landscape

The landscape for financial services has been re-shaped in this new post-COVID era and there is no turning back. The same is true within Asian economies as it is for those in the West. IFCs, which have often been the preferred location for cross-border investment solutions, will need to be nimble if they are going to meet the challenge. They will need the right frameworks that are committed to the cause of sustainable investments, complemented by the new supporting tools and evaluation services. If they respond accordingly, while also maintaining robust yet flexible regulatory regimes that meet the global standards expected, they can play an important role in channeling funds where they will make a positive difference.

ABOUT THE AUTHOR

Maria is a fellow of the Association of Chartered Certified Accountants and an associate member of the Chartered Governance Institute. Born in Jersey, she has more than twenty years’ experience working in the international finance industry and is experienced in investment funds, private wealth, compliance, risk management and project management. Based in Asia for the last ten years, having transferred from Ogier Fiduciary Services Jersey to develop their fiduciary services business in Hong Kong, Maria has also worked for various listed entities and financial service providers in Singapore and Shanghai, where she is now based full time.

ABOUT THE COMPANY

Jersey Finance is proud to work with key partners to represent and promote Jersey, a forward-thinking international finance centre. We champion the competitive position of Jersey's finance industry, both locally and internationally, supporting the highest regulatory standards and the most attractive products and services to suit the needs of global investors. We have a global presence with offices in Jersey, Dubai, Hong Kong and New York; representation in London and Johannesburg; and virtual offices in Shanghai and Mumbai. For more information visit www.jerseyfinance.je.