A new report, Private finance and its role in supporting the transition to net zero, commissioned by Guernsey Finance, in association with Baringa Partners, identifies the vital role that the financial services industry can play in achieving a just transition to a net zero future.
The research highlights the opportunities that exist for various financial services industry sectors and outlines a potential roadmap highlighting key steps spanning the next three decades, translating strategy into action, to accelerate the transition towards decarbonisation of the economy.
While there has been significant attention paid to the role of public finance, until recently there has been less attention on the critical part private finance can and must play if the goals of the Paris Agreement – to limit global warming to below two degrees a preferably to 1.5 degrees Celsius and for developed economies to invest $100 bn annually – are to be met.
The report addresses the broad steps and provides sector specific guidance that different industries within the financial services sector could follow to support the transition and decarbonise the economy. It outlines key opportunities, risks and mitigations for insurance, investment funds and management, trust and company, private banking and pensions.
The report also highlights the strengths of Guernsey’s specialist financial services sector and the opportunities for growth that exist by assuming a proactive transition strategy and by creating more products and services to facilitate the transition.
The transition to net zero represents a substantial opportunity for product innovation in areas such as transition finance, turning ‘brown’ activities to ‘green’. As a leading international finance centre and green finance hub, Guernsey can play a role disproportionate to its size in supporting the transition, with potential benefits such as growth of Guernsey’s green investment sector from £4.5bn to £56bn by 2040, according to the report.
NET ZERO COMPLIANCE
The insurance industry will play a critical role in the transition to net zero by providing resilience and helping organisations and communities overcome loss events. Guernsey is home to over 600 insurance companies and cells, with gross assets valued at £31.4 billion and gross written premiums standing at approximately £4.62 billion. The jurisdiction holds captives for 40% of the FTSE 100 companies and the structure provides alternative risk transfer solutions relevant to a just transition.
The report highlights that the island’s reinsurers are also well placed to provide collateralised catastrophe reinsurance whilst Insurance-Linked Securities (ILS) can be thought of as climate-indexed investments issued to trigger resilience funding following a loss event and enable rapid response to those affected.
The report also states that PCCs could be used to ring-fence risk around transitioning assets and to cover catastrophe exposure on investments.
Stephanie Glover, (pictured) Head of Sustainable Finance at We Are Guernsey said: “The opportunity to utilise financial services in driving the transition to net zero, especially in such a way that is as fair and inclusive as possible, is enormous. This report provides practical guidance that organisations can take to embark upon that journey if they have not already begun.
“The challenges are serious, but the solutions are there and Guernsey, as a force for global good, has a fundamental role to play in securing a net zero future.”
Rupert Pleasant, Chief Executive at We Are Guernsey, welcomed the report: “The conversation is very much focused on achieving net zero, and this report covers the actions that organisations can take in order to embark on that journey and beyond. Equally important is making sure that the transition is just.
“This report provides a roadmap to net zero and shows that a joined up approach is needed. Guernsey as an international finance centre can support those changes across the whole of the finance industry.”