Guernsey sets out ESG criteria governing private equity

Guernsey sets out ESG criteria governing private equity
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Guernsey Finance today published its guidelines for private equity firms looking to invest sustainably.

The set of green principles, which are voluntary, aim to bring climate risks and resilience into the heart of private equity decision making based on "better climate disclosure and risk management."

Guernsey Finance, the industry-government joint initiative established to promote business in the Channel Island jurisdiction, published the guidelines in a report entitled "Green Private Equity Principles: a Guides to Best Practice for GPs."

Time after time our own research has thrown up concerns that sufficiently simple guidance for the private equity industry was lacking. We have developed these pragmatic and proportionate principles in response to that demand."

Private equity funds domiciled or administered in Guernsey have a net asset value of more than £120bn.

Marshalled by the G20 and created by the private sector, the Task Force on Climate-related Financial Disclosures (TCFD), a comprehensive, practical and flexible framework for corporate disclosure of climate-related risks and opportunities, informs the overall approach.

Highlights from the report include:

  • Boards ensure climate change risks are given proper consideration at every stage of an investment's lifecycle, from the raising of funds and due diligence, through to the investment, holding period and later exit process.

  • Green financial instruments - including green bonds, asset backed securities, investment funds and insurance - be aligned to the investment process, with climate change risks and the goal of climate change mitigation in mind.

  • Boards will aim to foster a culture of reporting findings and outcomes to the relevant stakeholders regarding the success of climate mitigation achievement, against agreed international standards.

  • Staff, stakeholders and investee companies are educated on climate change risks, the importance of climate change mitigation through sustainable investments, and the carbon footprint of our investments.

Dr Andy Sloan, chair of Guernsey Green Finance, the industry body which has developed the principles, said: "Time after time our own research has thrown up concerns that sufficiently simple guidance for the private equity industry was lacking. We have developed these pragmatic and proportionate principles in response to that demand.

"Their aim is to help create simple reporting and transparency to enable private equity firms to become ‘green and sustainable' and to guide the industry towards playing its part to transition the global economy to becoming carbon-neutral. We hope these principles will help route capital to the cause of climate change mitigation."

The principles, written largely from a general partner perspective but also applicable to limited partners, are based on a two-pillar framework: (1) process, comprised of governance, culture and transparency; (2) portfolio, covering risk assessment, assets, taxonomy, measurement, and reporting.

The report's foreword has been written by Tim Hames, who was Director General of British Private Equity and Venture Capital Association (BVCA) until last year.

"Private equity needs to think anew in the light of the crisis. This document is the right place to start," he said.

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