Guernsey Finance, a joint industry and government initiative established to promote the island’s financial services sector internationally, has published a set of sustainable investing criteria for the private equity industry.
The voluntary principles are detailed in the Guernsey Green Finance and UN Environment report titled “Green private equity principles: a guide to best practice for GPs”, a move to help standardise environment, social and governance reporting for private equity firms.
“Time after time our own research has thrown up concerns that sufficiently simple guidance for the private equity industry was lacking,” said Andy Sloan, chairman of Guernsey Green Finance, which is part of Guernsey Finance. “We have developed these pragmatic and proportionate principles in response to that demand.”
The principles are structured as a two-pillar framework.
The first pillar is focused on process and aims to embed ESG considerations into a firm’s governance, culture and transparency, and provides success criteria to follow in each of those three categories.
The second pillar focuses on portfolios, providing Guernsey-domiciled funds with principles and success criteria for risk assessment, assets, measurement, reporting and classifications and taxonomies.
The guidance is based on the Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board, which provides a framework for corporate disclosure of climate-related risks.
ESG criteria are notoriously difficult to quantify and benchmark, especially for private equity, but Tim Hames, director general of the British Private Equity and Venture Association, says the industry must step up to the challenge.
“Private equity must be at the forefront of green finance and sustainable finance. The tactical dilemma is how to do this at the scale and speed demanded.”