An open consultation on the way firms have to report their sustainability targets and achievements is half way through.
The results of it could have an impact on how multiple industries are legally mandated to declare details around their own sustainability goals.
Specifically, it could see the GFSC make changes to amend governance and anti-greenwashing obligations which are relevant to all persons supervised by the Commission.
A Discussion Paper, published at the end of July, sets out the scene.
Background
“Addressing the global environmental sustainability crisis is a key challenge of our age, and how well we address it will be the measure of not just the current generation but also the next to come,” wrote former-Deputy Lyndon Trott, when he was President of Policy and Resources.
“International capital markets will play a crucial role in finding the solution to this challenge,” he continued.
Introducing the Discussion Paper, then-Deputy Trott wrote that Guernsey “as an established and trusted international financial centre…will play its proper part in supporting this vital international effort and meeting the expectations of our international investors and business partners”.
He urged people to engage with the issues raised in the Discussion Paper to “help to ensure that investors receive the information on sustainability risks and opportunities they need; allowing them to invest with confidence”.
Mr Trott confirmed that the “Bailiwick remains steadfastly committed to meeting international standards without undue bureaucracy, allowing markets to function efficiently and fairly”.
“Agreeing the right approach for the Bailiwick in meeting new international sustainability reporting and governance standards will contribute to the ongoing strength of this jurisdiction’s financial sector and, ultimately, I very much hope, fulfil our responsibility to bequeath a healthy and prosperous Earth to generations to come,” he wrote.
The Discussion Paper
Compiled last year, the Discussion Paper brings together views on what next steps the Guernsey Financial Services Commission might need to take to address the role of the Bailiwick’s finance industry in meeting the challenges presented by sustainability and climate change risks.
A number of industry standards have been introduced already, over the past 15 years, and arguably the Bailiwick has been ahead of the game in many areas after launching the Guernsey Green Fund regime in 2018, and in 2022 the Natural Capital Fund regime. Since 2021, the GFSC has published an annual Sustainability Report, and that same year it amended the Code of Corporate Governance and introduced a requirement that Boards consider the impact of climate change on their strategy and risk profile, and where they consider it appropriate, make climate change related disclosures.
With further recent international developments in the area of sustainability reporting, including the work of the International Sustainability Standards Board (ISSB), the Discussion Paper sought to gather information and views from people within the finance sector on the potential impact of the introduction of those standards and what other steps might enhance licensees’ sustainability risk governance and management.
With the ISSB now focused on the wider concept of sustainability reporting, new standards being introduced will look at the key areas of Governance, Strategy, Risk Management and Metrics.
Much of the focus of all of these standards is on meeting the needs of investors with companies asked to disclose material information about sustainability-related risks and opportunities.
The standards
The standards around sustainability reporting have evolved and in 2023, the International Financial Reporting Standards Foundation released its two key policies.
Standard 1 is focused on general requirements for the disclosure of sustainability-related financial information, as well as any relevant bio-diversity concerns, while Standard 2 focuses on climate related disclosures. It also seeks disclosure of cross-industry and industry-specific risks.
Reliable sustainability reporting is seen as crucial for the financial services sector because it ensures the necessary information is available so that businesses and their clients can properly understand the impact of these risks, allowing markets to function efficiently.
In the context of investments into sustainable projects this is increasingly important as investors are more interested than ever in ensuring their money is not wasted on green washing but is backing genuinely sustainable projects.
The GFSC said Bailiwick firms “will need to develop and be ready to explain their approach to sustainability and climate change to others in the value chain, where they have not already begun to do so”.
“The direction of travel internationally is clear, and it is not just a technocratic change set by international bodies, much is driven by large companies responding to market and consumer demand. Some Bailiwick firms are already engaged in exploring the opportunities in sustainable finance. Equally those firms that see this as simply another compliance headache may find themselves caught out, even cut out, by pressures brought about by the demands of the market as much as by legally binding implementation of the standards.”
The Discussion Paper was viewed as important by the GFSC because it feeds into the current open consultation which itself will help set new standards for the Bailiwick.
“All participants are encouraged to consider the various global proposals and consider and feedback to us which parts the Bailiwick should adopt and the timescale for such adoption.”
The consultation
International changes will undoubtedly affect how businesses in the Bailiwick operate.
To what extent varies on a number of factors, but the GFSC said it “recognises that these international developments will present challenges”.
“Across the finance industry some firms are already engaged in these issues, or with existing reporting obligations, whereas to many this is still new territory,” it said.
The feedback to the Discussion Paper on the changing expectations and standards did not reveal any glaring issues to be addressed, but it was made clear that some businesses will be more prepared than others for the changing processes.
One common concern was around conflicting local and international obligations, while other respondents noted the differing approaches and timescales being taken to the adoption different standards.
“Some respondents suggested that any financial services focused sustainability disclosure requirements should be considered alongside general corporate sustainability disclosure requirements,” noted the GFSC.
The consultation, which will lead to decisions being made on sustainability reporting in the Bailiwick of Guernsey for those entities monitored by the GFSC, remains open for another month.
