GLOBAL BUSINESS: A VIEW FROM THE CHANNEL ISLANDS
APRIL/ MAY 2022
ESG SPECIAL EDITION • Making ESG tangible • Market trends • Private clients • Momentum investing • Start-ups
ISSUE 77 APRIL/MAY 2022
Learning your ESG The new language of business
ESG: the way forward EVERYBODY’S TALKING ABOUT ESG. In fact you can hardly visit a corporate website or open a social media platform without being bombarded by financial services firms’ commitments to it. Whether pledging to help save the planet, stating a desire to fix social ills or stressing the ethics and strength of their operations, companies are at pains to tell us they are as committed as the next to environmental, social and governance issues. Meanwhile, the situation in Ukraine has merely heightened corporates’ awareness of ESG issues. Those that operate in or do business with finance firms in Russia, for example, are currently all the more aware of the social impact those activities will be having on the people of Ukraine, the environmental fall-out of energy supply from Russia and the ethical issues of financing firms that may be financing war. It is with all these issues in mind that in this edition of Businesslife we dig deep into the latest trends around ESG, how it will really impact the financial sector going forward, the challenges it provides to all companies, and the risks posed, specifically to Channel Islands businesses, of ‘getting it wrong’.
GAINING MOMENTUM While ESG has already seen a rapid rise to the top of boardroom agendas, our article (p28) on the latest trends and influences driving this suggests there remains plenty of room for further growth. Research carried out on behalf of HSBC Asset Management shows that almost half (46%) of those surveyed in Hong Kong, mainland China, Singapore and the UK believe their portfolios will be entirely made up of sustainable investments in the next three to five years, with the majority (82%) of respondents rating sustainable, environmental and ethical issues as either quite important or very important. However, our article sets out how increased awareness of ESG issues, driven by recent events such as the pandemic and the invasion of Ukraine, are heightening consumer and client demand for pro-ESG products, services and firms even further. Of course, while investors and clients are keen for ESG products, many will not want this to be to the detriment of performance and returns. Our article starting on page 44 explains how, as a result, it has become incumbent on asset managers and alike to
find more effective ways of gaining returns from sustainable investment. In response, many have turned to ‘momentum investing’ – moving away from investing in stocks that already have demonstrable ESG credentials in favour of those that are on the cusp of a transition to more responsible practices, and capitalising on the forthcoming rise in returns later.
BALANCING THE VIEW Given the increased focus on ESG in recent years, it’s not surprising that so many large corporates are so focused on sharing their credentials. But it’s not just large firms that will be scrutinised by their customers and clients. Smaller firms and start-ups need to be able to demonstrate their credentials too, not least if they are looking for investment to grow. Our article on page 52 looks at a number of ways they can do that, as well as some of the support available to lift the burden. Of course, not everyone is wholly convinced that all firms’ credentials stand up to scrutiny when it comes to ESG. Just as we have seen a number of firms fall victim to greenwashing – claiming their funds and activities are eco-friendly, only to be exposed as not being so – firms need to be careful not to overstate their ESG commitment. In our main interview piece, Dr Andy Sloan, Founder of the International Sustainability Institute Channel Islands, says this is a real risk – while also urging some caution for firms that are over-committing on the social and governance aspects of ESG. “I personally think [the ‘S’ and ‘G’] have to teeter off a bit – because, genuinely, over the course of the next 10 years, I don’t believe we as a society or the finance sector as an industry will have the excess human resource, bandwidth and capital to worry about all of these other things in the same way,” he says. “What I actually believe,” he continues, “is that net zero and the ‘E’ bit of ESG can become a proxy for most of everything else.” Food for thought. Enjoy the issue. n
While ESG has seen a rapid rise to the top of boardroom agendas, there remains plenty of room for further growth
Jon Watkins is Editor-in-Chief of Businesslife
April/May 2022 3
Businesses across all sectors are reviewing their approach to sustainability, carbon reduction and social impact. The mandate for change is supported by a growing number of global investors who are choosing to create positive change as well as financial returns. We support both grassroots projects and global impact investors. We work with asset managers, fund managers, institutional investors, investment banks, private equity houses, family offices, charities, sovereign wealth funds, HNWIs and intermediaries and provide advice on the legal aspects of sustainable investment and its implications on governance and compliance processes. To find out more, please visit careyolsen.com
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CEO, CHAMELEON GROUP Carl Methven firstname.lastname@example.org EDITOR-IN-CHIEF Jon Watkins ART DIRECTOR Angela Lyons
28 6 News
Round-up of activity in Jersey and Guernsey
Top-level job moves in the Channel Islands
The pressure is on to persuade fund managers that ESG is a tangible concern, despite the often unclear language surrounding it
28 markey trends
Dr Andy Sloan, Founder of the International Sustainability Institute Channel Islands, on a sustainable future
ESG has been gaining ground for years, but Covid-19 and the war in Ukraine are helping to turn up the volume
34 esg risks
SUB EDITOR Kate Wheal
ESG failures pose a risk to any firm’s reputation and business model – but the Channel Islands face other concerns as well
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38 private clients ESG funds are firmly on the radar of private
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clients – but what should clients and advisers be aware of when setting out on the journey?
44 investing Momentum investors are sizing up opportunities with businesses that are yet to adapt their business model to ESG
48 recruitment Today’s workers are not just after a fat salary, but a sense of purpose and a decent boss. And ESG credentials are key
52 start-ups ESG has become a board-level concern for all big businesses, but start-ups must prove their ESG credentials too
57 The knowledge Oil in numbers, new books and resources, tackling the gender pay gap and a proifle of Amy Edmondson
contributors The BL Global Discussion Forum
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David takes a look at all the latest ESG trends and the big issues that are likely to have an influence on whether it continues its mighty rise up the boardroom agenda.
Sophie turns her attention to the specific impact of ESG on those who serve and advise private clients – and how they might need to adapt to meet changing client interests.
Meanwhile, Alexa asks whether candidates’ desire to work for ESG-focused businesses is influencing the growing war for talent and the search for top staff.
Alex considers the impact of ESG on businesses closer to home and the particular risks to Channel Islands firms of getting it wrong when it comes to ESG strategies.
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in the NEWS
JERSEY UKRAINE GUIDANCE As a result of the war in Ukraine, the Government of Jersey and the Jersey Financial Services Commission have highlighted the increased risk of money laundering, terrorist financing and proliferation financing when providing services to clients linked with Russia and Belarus. The JFSC has also published guidance on dealing with these higher risk relationships. The Jersey authorities have advised regulated entities to carry out due diligence on a risk basis and take measures based on their risk assessment for those customers. These may
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include, but are not limited to: • Non-Jersey-resident Russian/ Belarussian individuals and organisations • Those who have any source of income from Russia/Belarus • Individuals and organisations who regularly conduct business in Russia/Belarus or with individuals or organisations from those countries. To identify whether a person is a non-Jersey-resident Russian/ Belarussian person or entity, businesses are advised to consult the JFSC’s Beneficial Owner and Controller Guidance. They should also familiarise themselves with indicators of sanctions evasion and consider the adequacy of their risk management arrangements. Transactions and mandate decisions should be approved by senior managers and overseen by the board, adds the JFSC. Where a firm is considering exiting a customer relationship with a person or entity not subject to sanctions but associated with Russia/Belarus, there may not be a prohibition against providing services to facilitate the transfer of the client relationship. In this case, greater due diligence is needed to ensure entities do not assist the evasion of sanctions and that any firms party to such transactions are not subject to sanctions. Given the fluid situation, the Government of Jersey and JFSC believe that if a regulated financial services business is considering a new Russia or Belarus-associated customer relationship, it may not be possible to adequately mitigate the risk of sanctions evasion. Advisers, including those from the legal sector, may be required to assist the exit of these customer relationships, for which a high level of due diligence should be applied.
Done Deals Lawyers from Carey Olsen’s corporate and investment funds practice in Jersey have acted for Falko Regional Aircraft Opportunities Fund and Falko Regional Aircraft Opportunities Fund II in relation to a proposed sale by affiliates of Fortress Investment Group of Fortress’ equity interests in those funds to Chorus Aviation. The sale, valued at $855m, includes Falko’s asset management platform and equity interests in 126 owned and managed regional aircraft. The sale is expected to close in Q2. Carey Olsen advised the Jersey funds and selling entities on all Jersey legal and regulatory aspects of the sale to Chorus, with Partner Daniel O’Connor leading the firm’s team. Bedell Cristin has advised Israeli financial group Menora Mivtachim Insurance Company on its £112m investment in 13.6% of Brockton Everlast, a property investor focusing on the central London area. The Bedell Cristin team, working with Bryan Cave Leighton Paisner, advised Menora on the Guernsey aspects of the investment. It was led by Guernsey Managing Partner Kate Ovenden, assisted by Senior Associate James Walsh and Legal Assistant Steven Zandvliet. Ogier’s cross-sector real estate team in Jersey has acted for Alpha Property Lending in the completion of a £12m facility for the Siena Group and its Les Bardeaux development. The development of 11 luxury flats is due to complete in summer 2023. The Ogier team was led by Commercial Property Partner Katharine Marshall and assisted by Laura Shirreffs and Stephanie Button, providing support on the real estate security aspects of the transaction. Ogier has also advised Gazit Globe on its €1.45bn acquisition of Atrium European Real Estate (AERE) in the first ever take-private by way of a Jersey statutory merger. The transaction involved the cash acquisition of the entire issued share capital of AERE not already owned directly or indirectly by Gazit or its affiliates. Gazit offered €3.63 per share in cash to the minority shareholders of AERE. Working with lead counsel Kirkland & Ellis, Ogier guided Gazit through the novel approach to the transaction, including shareholder approval mechanics, shareholder and creditor objection rights and the Jersey regulatory position. The Ogier team was led by Corporate Partner Richard Daggett, assisted by Managing Associate Kevin Grové and Senior Associate Alex Fisher, with dispute resolution advice provided by Partner Nick Williams. RBS International has been chosen to support an investorbacked loan facility for a fund established by AnaCap Financial Partners on a two-year agreement. The fund will make investments in mid-market, tech-enabled financial services businesses in the UK and Europe, targeting six to eight assets with values of betweem €25m and €75m. RBSI has had a direct banking relationship with the customer since its inception in 2005. n
GUERNSEY GREEN STRATEGY Biodiversity, energy transition, and carbon pricing and markets are the three key priorities for Guernsey Finance and Guernsey’s sustainable finance industry, according to the Guernsey Green Finance Strategy Report, which was released in March. The strategy sets out measures and themes to enable Guernsey to maintain its position as a leading sustainable finance centre. The report was developed with the support of Guernsey Green Finance’s industry-driven strategy group, the UN Financial Centres for Sustainability Network, in collaboration with stakeholders in Guernsey and internationally. Drawing on discussions at COP26, which Guernsey Green Finance attended, it outlines how engaging with these key themes will promote Guernsey’s sustainable finance priorities and capabilities.
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MERGERS AND ACQUISITIONS Zedra has acquired US-based accountancy, tax and payroll consultancy Axelia Partners. Axelia, privately owned by Alexandra and Philippe Suhas from 2013, is based in Boston, Massachusetts, with offices in New York. It helps predominantly Europe-based businesses and entrepreneurs expand in the US by providing administrative and accounting services to operate there. In addition, Zedra is to receive a strategic minority investment from Canadan institutional investor British Columbia Investment Management Corporation. The investment will be made in partnership with Zedra’s management team and the business’s existing majority investor, Corsair, will continue as the majority shareholder. ED Capital and Oakbridge Funds have joined together formally as Oakbridge. The combined businesses will offer administration and accounting services under the Oakbridge banner, having previously operated separately in the same group. Oakbridge will provide corporate services under the leadership of ED Capital founder Jamie Crawford. In his new role as Managing Director – Corporate for Oakbridge, Crawford will also oversee the wider business. Fund administration services will be led by Oakbridge Fund Services co-founder Robin Wilson, now MD – Funds. Norwegian firm Orkla Health has acquired Guernsey-based dietary supplements supplier Healthspan Group. Orkla is purchasing Healthspan from the estate of the founder Derek Stephen Coates, who died in 2020, for £65m on a cash and debtfree basis. The deal includes the possibility of up to £20m of additional purchase price depending on the company’s results in the next two financial years. Healthspan, established in 1996, distributes dietary supplements and skincare products in Great Britain, Ireland and New Zealand. It will continue to operate as a standalone business in Guernsey, with the current management operating the business following the acquisition. Interactive entertainment operator Entain has bought Jerseybased gaming business Avid International (Avid Gaming) in a C$300m deal. Avid Gaming has been based in Jersey since 2015 and owns Canadian online betting brand Sports Interaction. It is licensed and regulated by the Jersey Gambling Commission and supervised by the Jersey Financial Services Commission, and is a member of Digital Jersey. Advisers to Avid Gaming during the purchase negotiations were M&A consultancy Partis, law firm CMS, accounting firm BDO and Carey Olsen. n
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POWERWOMEN AWARDS 2022 There were several Channel Islands winners at this year’s Citywealth Powerwomen Awards presentation: • Career Achievement Award – Gail McCourt, RBC Wealth Management (pictured) • Champion of the Year – Zena Couppey, LGL Group • Best Employer, Career Progression (LGBT+/Inclusion) – Barclays Private Bank • Company of the Year, Creating Change for Women – Collas Crill • Wellbeing Advocate of the Year – Zedra • Woman of the Year, Business Growth (Large/Institutional) – Jennifer Le Chevalier, IQ-EQ • Woman of the Year, Leadership, Financial Organisation (Director) – Gillian Ralston Jordan, JTC • Woman of the Year, Professional Services – Sarah Bartram-Lora Reina, Ocorian • Woman of the Year, Rising Star – Danielle Cottignies, Crestbridge. PRIVATE EQUITY SURVEY Private equity and venture capital firms have never been as valuable as they are now, according to EY’s 2022 Global Private Equity Survey. The survey, of more than 100 private equity COOs, CFOs and executives, highlights the initiatives businesses need to consider to maximise their value in the market. Many PE firms are adopting more mature business processes, it reports, from internal reporting and compliance to financial planning and analysis. While larger firms ($15bn+ in funds) lead the way, all firms are stepping up their game. In the latest Monterey Insights reports, private equity and venture capital accounted for $325.9bn of assets for
domiciled and non-domiciled funds in Jersey. In Guernsey, private equity and venture capital funds also remain the most popular product of serviced funds, topping asset allocations with $388.4bn. In addition, the EY survey highlights two increasingly important initiatives deployed by private equity and venture capital firms to create longterm value – talent management plans and ESG strategies. VIRTUAL ASSET ENQUIRIES Almost half of enquiries received by Jersey’s Innovation Hub in 2021 related to virtual asset services – Jersey companies issuing tokens, brokerage services, custody, algorithmic trading, high-value dealing in virtual assets and exchange services. According to the Innovation Hub’s latest FinTech and Innovation Report, innovation enquiries are still on the rise. In 2021, the JFSC helped 77 businesses with queries about innovation in financial services and how regulation applies to them – up nearly 7% on 2020. H2 2021 also saw increased interest in non-fungible tokens (NFTs) relating to visual art, music or e-gaming collectibles. JFSC Interim Director General Jill Britton commented: “We continue to work with the Government of Jersey to establish a comprehensive regime for virtual asset service providers and issuers in line with international standards and recommendations.” n
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Appointments Moore Stephens Channel Islands has appointed Dominic Hebert as Executive Director – Head of Corporate Services in Jersey. For the past two and a half years, Dominic has served as Director – Head of Corporate, Capital Markets and Real Assets Services at Apex Group, responsible for client service delivery to regulated and unregulated structures across corporate, capital markets, real assets and fund services. His career on the island has also included three years as a Tribunal Member for the Government of Jersey and 12 as a Director at Link Asset Services. He trained as an accountant with PwC.
HSBC has made two appointments to its commercial banking team in Guernsey. Dominic Stacey (pictured) has been promoted to Relationship Director – Financial Services and Multinationals, while Timothy O’Keeffe joins as a Senior Sales Manager in the bank’s Global Liquidity and Cash Management team. Dominic has worked at HSBC for nine years and before moving to Guernsey in 2021 was based in London as Associate Relationship Director, UK Leveraged Corporates. Tim has 30 years’ experience in banking in Luxembourg, Hong Kong, Singapore and London, including at JP Morgan Chase and Goldman Sachs.
PraxisIFM Group has appointed Alexandra McInnes as its Group Chief Operating and Risk Officer, based in Guernsey. Alexandra returned to the island in 2019, having spent 16 years in senior roles with KPMG in Bermuda and PwC in London and New York. She has spent the past three years as a Director within PwC’s advisory business in Guernsey, where she led a number of governance, risk and compliance transformation projects for financial services clients. Alexandra is experienced in leading teams and driving change, and specialises in governance, risk and compliance and operational transformation.
London and Jersey-based firm Baker & Partners has promoted Senior Associate James Sheedy to the partnership. James, who is called to the bars of both England and Wales and Jersey, joined Baker & Partners in 2014. As a senior litigator, he has specialised in complex trust disputes, as well as contentious commercial and company law matters. James is a member of the Association of Contentious Trust and Estate Practitioners, the Contentious Trust Association and the Chancery Bar Association. He also serves as a member of the Trust Law Working Committee of Jersey Finance.
The Guernsey International Business Association (GIBA) has named Aon Managing Director Paul Sykes as its Deputy Chair. Paul has worked with Aon for more than 25 years, developing businesses for Aon and the White Rock Group in Guernsey, Gibraltar and Malta. He is a former Chair of insurance associations in Gibraltar and Guernsey and a past President of the Chartered Insurance Institute in Guernsey. Paul was a member of GIBA Council from 2013 to 2015, and helped launch the first protected cell company, White Rock PCC, and insurance-linked securities in Guernsey.
JTC has promoted Gillian Ralston-Jordan to the position of Group Director, Private Client Services, based in Guernsey. Gillian has served as a Director with JTC in Guernsey since 2017. She relocated to the bailiwick from the Isle of Man, having held a number of senior roles with Duncan Lawrie Private Banking, Abacus Trust Company and IFG International. Earlier in her career, Gillian spent five years as Managing Director of the Royal Bank of Trinidad and Tobago, three with EY in Barbados, as well as four with Bank of Bermuda in the Cayman Islands.
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IQ-EQ has appointed Greg Kok as its Guernsey Managing Director. A Chartered Accountant who began his career with Deloitte in South Africa, Greg joins the company after three years with JTC in Luxembourg as Group Head of the alternative investment fund management business. He has 24 years’ experience in the asset management and asset servicing sectors in the UK, Bermuda, Singapore, Vietnam and Luxembourg. A member of various Luxembourg financial industry bodies, Greg was most recently a member of ALFI’s Management Company Steering Committee.
Ashburton Investments has promoted Kathy Davey from Senior Equity Analyst to Investment Manager, relocating from South Africa to Jersey. Kathy has worked in the Ashburton Investments team for nearly 10 years, having joined in 2013 as an Equity Research Analyst for the African Equity Opportunities Fund. Her earlier career included periods as an analyst with Bear Stearns and Cenkos Securities in London and Barclays Capital in South Africa. Kathy, who began working as a Senior Equity Research Analyst in Ashburton’s Global Equity team in 2019, will now co-manage the Global Leaders Equity Fund.
Crestbridge has named Ellie Sharples as Director, Senior Compliance Officer, based in Jersey. In her new role, Ellie will oversee the monitoring of operational performance and management of all regulatory and compliance matters. She oversees Crestbridge’s relationship with the Jersey Financial Services Commission, having spent the past four years as Senior Manager, Banking Supervision, with the regulator. Ellie was a member of the Jersey Government working group responsible for its National Risk Assessment for money laundering. Prior to that, she spent 10 years with Citi and 17 with Lloyds Banking Group.
Hawksford has promoted Collette Holt (pictured) to Director of its global Customer Service Support (CSS) team, covering jurisdictions including Singapore and Hong Kong. She previously led the CSS team in Jersey. Prior to joining Hawksford, Collette spent almost 10 years with RBC Wealth Management, managing the client onboarding team for the British Isles. Meanwhile, Abi Cabral has been promoted to Associate Director of Finance in Jersey. She has been with Hawksford since 2017 as a Finance Manager, having previously worked for Standard Bank Offshore, Axio Capital Solutions and EY.
LGL Group has appointed Zena Couppey (pictured) as Chief Executive Officer. Zena joined LGL in 2020 as Chief Commercial Officer, having spent almost 11 years with Sanne, latterly as Managing Director – Client Services. She has more recently worked as an independent Director. In addition, Mike Newton has been promoted to Chief Operating Officer, having joined LGL in 2021 after four years as a Director at Crestbridge. And Stephen McKenna, previously Group Head of Alternative Assets and ESG, has been promoted to Chief Commercial Officer in LGL’s Luxembourg office.
The Guernsey Financial Services Commission has elected Baroness Philippa Couttie as its Vice-Chair. Philippa has held leadership roles over the past 30 years in financial services and politics, and has served as a GFSC Commissioner since January 2020. She founded, built up and sold two PR businesses, as well as being Chief Executive of a subsidiary of a publicly quoted company, a Director of Citigroup and Leader of Westminster City Council. She sits in the House of Lords, where she is a member of the EU Affairs Select Committee. She is also a Non-Executive Director of Mitie.
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Take advantage of tech volatility
Joseph Peacock, Client Advisor at UBS Jersey, looks at the emerging opportunities of tech volatility
AFTER YEARS OF tech outperformance, a sudden rise in interest rate expectations in early 2022 has weighed on the performance of growth and technology stocks. The Nasdaq is down around 15% year to date, megacap forward PEs have fallen to the mid-20s, and almost 40% of the index constituents are down 50% or more from their highs. While it is too soon to broadly buy tech, we see pockets of opportunities opening in select names for long-term investors seeking exposure to technological disruption and digital transformation. We think artificial intelligence (AI), big data and cyber security – the ‘ABCs of tech’ – along with 5G enablers, will grow faster than the tech sector as a whole. Plugging into these growth drivers will require investors to look beyond just mega-cap tech stocks and focus on the mid-cap names or healthtech and genetic
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therapy plays that could prove to be ‘the next big thing’. As businesses and governments sharpen their focus on the ABC technologies, we expect the combined revenues of the three segments to grow from $386bn in 2020 to $625bn in 2025. AI revenues should rise the fastest, by almost 20% a year, with big data and cyber security growing at between 8% and 10% a year, but with greater potential for margin expansion. Overall, we expect companies exposed to our ‘ABCs of tech’ theme to deliver 16% earnings per share growth per year. ● Artificial intelligence: AI is already widely used in navigation, pricing, advertising, facial recognition and translation. In the years to come, we believe companies will increasingly turn to AI to improve customer experiences,
reduce the cost of providing products and services and develop new business lines. We expect the market for AI services and hardware to grow 20% a year, to reach $90bn by 2025 – and it could even surprise to the upside if improvements in computing power, research and development, machine learning and deep learning capabilities exceed our expectations. ● Big data: It has become commonplace to say that data is the new oil. Indeed, we are surrounded by this digital commodity. We expect the global data universe to expand more than tenfold from 2020 to 2030, reaching 660 zettabytes – equivalent to each person on the planet having 610 iPhones (128GB). But, just like oil, data needs to be refined before it can be put to use to automate business processes, boost efficiencies
We expect the market for AI services and hardware to grow 20% a year to reach $90bn by 2025
or improve the quality of strategic decision-making. Data travels through six distinct stages during its life: creation, transmission, storage, processing, consumption and monetisation. We focus on companies that touch on all of the steps within the digital data lifecycle and expect the big data market to grow 8% a year from 2020 to 2025. Our estimates may prove conservative if big data adoption in emerging markets is greater than we expect. ● Cyber security: The number of connected devices is growing rapidly, but at the same time nearly 330 million people in 10 countries experienced cyber crime in the past 12 months, according to the 2021 Norton Cyber Safety Insights Report. At enterprise level, shifting to cloud computing has cut company costs significantly – but it has increased the potential impact of an online attack. We expect the cyber security industry to grow by an average of 10% from 2020 to 2025 thanks to steadily higher
enterprise IT spending and the stronger adoption of cloud security. Cyber security is also one of the most defensive segments within IT. Reflecting its importance, enterprise spending on cyber security has grown by high-single-digit rates in recent years, whereas broader IT spending has grown only by low- to mid-single-digit rates. ● …and 5G: We believe the rollout of 5G technology, which is 20 times faster and 90% lower in latency than 4G, will bolster the impact of the ABC technologies, enabling various applications that were not feasible before. These include fixed wireless access, autonomous driving, immersive augmented and virtual reality, telesurgery, massive industrial internet of things, data-driven agritech and highly connected smart cities. We see opportunity in 5G enablers and platform beneficiaries, and estimate a mid-teens earnings growth potential over three years. n
If you are interested in finding out more about our view on how to take advantage of tech volatility, please contact Joseph Peacock for more information. Joseph Peacock, Client Advisor, UBS AG, Jersey Branch 1, IFC St Helier, Jersey JE2 3BX Tel: 01534 701143 Email: email@example.com
UBS AG, Jersey Branch is authorised and regulated by the Jersey Financial Services Commission for the conduct of banking, funds and investment business. © UBS 2022. All rights reserved.
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As the Founder of the International Sustainability Institute Channel Islands; Managing Director of climate capital and risk advisory firm Netherite & Grunweldt; former States of Guernsey Chief Economist and Head of Policy & Research; and the man who helped launch Guernsey Green Finance, Dr Andy Sloan is well placed to talk all things sustainability and ESG in the Channel Islands…
Words: Jon Watkins Images: Glen Perotte
Why did you settle in the Channel Islands? After the Bank of New York, I kind of took stock of things. I realised I could probably take my share options in 10 years’ time and do that PhD in economics I’d always wanted to. So rather than wait, I stopped the bus, got off, did a Master’s in public policy and a degree in economics, and Andy Sloan version 2.0 was born. With that, a job came up in Guernsey as States Economist. I’d done PR for the
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Guernsey Financial Services Commission in the 1990s, so if felt serendipitous and I have to say Guernsey’s finance sector was pretty unrecognisable to the one I’d know when I came down just a decade later. Where did your passion for sustainability come from in all of that? In my day, environmentalism was Umweltschutz, acid rain and Brent Spar. I’ve always had a lean that way, but it was while I was at the GFSC that Mark Carney, then Governor of the Bank of England, gave his famous ‘Tragedy of the horizons’ speech to Lloyd’s of London – setting out the link between climate risk and financial stability risk – and I have to admit, I sat there thinking: “What is he smoking?” But when I read more of what he had to say and I saw him speak and met him, I understood the connection, and climate change mitigation become my thing. Broadly speaking, in the time since, I’ve worn every hat in the policy space in Guernsey. I did some consulting, I did some technical work for the Guernsey International Business Association, I moved across to the GFSC, where I was a Director, and I was International Policy Director and Director of Financial Stability at the GFSC. When I started in Guernsey, Commerce and Employment were setting up Guernsey Renewable Energy, and I ran some numbers
on the costs of installing renewables, looking at what it would cost for us to have some sort of renewable energy production on the island. That really stirred my motivation for sustainability for the Channel Islands that I still have today, and which now plays out through the Institute. You were instrumental in the launch of the Guernsey Green Fund – how did that come about? Come 2017/18, I was at the GFSC, merrily minding my own business, having quite a nice life, to be quite frank. Being a director of a financial services regulator is not a bad gig, especially if you don’t have any of the enforcement responsibilities – and you don’t have to actually take anyone to court for being naughty. But then the States turned around and said: “Look, we haven’t had a great five years in terms of finance development in Guernsey. We’ve moved sideways.” Their view was that, in 2012, we had quite a good financial crisis but it hadn’t really happened for us since then – and, quite frankly, that was true. When I looked at it, it was like we’d been looking in the wrong areas – as a jurisdiction we’d probably not quite appreciated where the market had gone. We’d become private wealth even in the funds area and there were a lot of people
Tell us about your background and where you grew up… I was born in Hull, but my dad was in the RAF, so we moved around quite a bit. He had a couple of foreign tours, one in Malta, which I’ve got a real soft spot for now. In terms of education, my first pass at academia was an engineering degree, followed by a postgrad at Cambridge and a ‘failure to launch’ type of experience in the early 1990s. But then I hunkered down, got a job, and worked in financial and corporate PR. I had a successful career doing that and ended up as Head of Corporate Communications for the Bank of New York in Europe, reporting to the boss in New York and responsible for seven or eight countries we operated in at the time. That was a great job. I was there during 9/11, which was a very formative experience.
interview Dr Andy Sloan www.blglobal.co.uk
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still banging the drum for retail funds for institutions. We didn’t appreciate where our market was – what our marketable base was. We were putting our resources in the wrong area. I realised that, in the long term, we really ought to be looking not just at pivoting to private wealth but pivoting to what I’d call green finance, positioning ourselves to help that. And I realised that isn’t about saying you’re a force for global good, it’s about being a force for global good. So when I established Guernsey Green Finance in 2018, with the backing of the Chief Minister at the time, Gavin St Pier, we got Guernsey Green Finance to join the UN Finance Centre for Sustainability – and that was pivotal to getting close to a group of fellow finance centres and learning from them. We’d been fortunate that we had got so much help from the Bank of England, the Green Finance Association and the City of London – and now we could go upstream and say: “Look, what people are going to need is certifiable, verifiable product, and a regulated regime that does what it says on the tin.” And thus, the Guernsey Green Fund was born. But I wouldn’t claim to have created it – frankly, you have to give William [Mason, GFSC Director General] his dues. He was the reason the GFSC went down that road. I just did the development.
Moving on to sustainability and firms’ abilities to analyse and measure their performance around that – as well as ESG – what’s your view of where we are currently? I just think it’s overcomplicated. If you look at climate change there’s only the one variable. I just don’t believe we need a massive basket of measures that you’re telling me I have to monitor and report on. What you want are simple measures. Whether or not I think it’s relevant to my investment approach or investment case, and whether or not I agree with you that it’s a good indicator of sustainability, the fact that the SFDR [the Sustainable Finance Disclosure Regulation, introduced by the EC, which imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants] has 13 prescribed indicators, of which nine are environmental, is madness. I don’t know why there are nine. For me, what’s important are your greenhouse gas emissions, your finance emissions metric and/or your degree – the future temperature that you’re consistent with. Those three are broadly all you’re going to need. That covers your directs, your indirects and your simple measure to make it easily comparable for people. We’ve managed to get ourselves into a situation in the world where a lot of this activity is pretty pointless and redundant.
As an economist, you have perfect competition as a case study. So, basically, you say: “Look, if everybody’s product is the same, how do you differentiate it? You differentiate it with stuff that really isn’t productive, it’s all marketing.” Generally – and I know this is a brutal sort of perspective, but a lot of this ESG stuff that we’ve gotten into nowadays is just that – is it really adding to the productive return? Not necessarily. Despite that, there is increasing demand from wealth holders and investors for investment firms and fund managers to demonstrate their ESG credentials – so doesn’t that justify the complexity of the measures? I agree there are many, many different studies and plenty of firms that can show, historically, they’ve taken an ESG approach to their investment strategy or have considered these factors, and their portfolios on average may have done better. But a plausible narrative would also be that a firm that looks to take a broad set of conditions or risks into account when making their investment decisions is also, on average, a better manager. So the plausible narrative could be that someone taking the approach historically just happens to be a better manager, and the economist would say this might also just be signalling activity by people.
Being a director of a financial services regulator is not a bad gig, especially if you don’t have to take anyone to court for being naughty
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Tell us about the Institute’s activities and core areas of focus. It’s not a marketing engine, it’s a contributing machine. When you’ve got a PhD, the yardstick – the measure – is whether you made a contribution to human knowledge. Again, that sounds
I want to make sure the Islands’ economies are sustainable – and recognised by the court of international opinion as being more than offshore parasites
precocious – but that’s what you have to do to get a PhD and that’s what this thing is set up to do. I want it to be, in five to 10 years’ time, an Institute for the Channel Islands that is recognised alongside the kosher international institutes and is
recognised as having a strong reputation. That’s my goal for it. The Institute’s job is to advocate, advise and research. Advocating environmental deployment of renewable energy is one of its core objectives. Advising on sustainable finance is another, and doing research across the piste is another. And look, when I left Guernsey Finance, I joined a few boards as a non-executive director, but the honest truth is the Institute is a labour of love. Guernsey is where my kids were born, where my kids go to school, and this is where my kids hopefully will one day have children of their own. I want to make sure that the Channel Islands’ economies are sustainable – and part of that is getting us recognised by the court of international opinion as being more than offshore parasites, as it were. A bit harsh, but it’s true. You’ve made the point that the environmental side of ESG is here to stay – given that there is a tangible and visible impact. But is it your view that the social and governance sides of ESG will teeter off a bit? I personally think that they have to teeter off a bit – because, genuinely, over the
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You’ve founded the International Sustainability Institute Channel Islands. How did that come about and what do you intend to achieve? Having established Guernsey as a leader around Green Finance, we’d achieved a lot of firsts in the process. The Guernsey Green Fund was a great success, publishing Green Principles, developing GIIA’s ESG framework, taking it to the next level and creating a research institute – a thinktank, as it were – to really try and make a contribution. And I mean a genuine contribution, not just a bit of marketing. I wasn’t getting quick enough traction where I was and it may sound precocious, but this was always the next step of the finance sector strategy I’d set out in any event – creating an institute around sustainability that is a force for good, that does things, that contributes. It just happens that since I’ve left, I’m able to do it across the Channel Islands, which is important.
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course of the next 10 years, I don’t believe that we as a society, or the finance sector as an industry will have the excess human resource, bandwidth and capital to worry about all of these other things in the same way. What I actually believe is that net zero and the ‘E’ bit of ESG can become a proxy for most of everything else. With environmentalism, you have that clarity, that clear link between action and reaction. And that’s what you need – because those companies that will be focused on net zero are also going to be those companies that, by happenchance, factor in these other good things, too. Of course, the other thing here is that the ‘G’ – governance – should be an absolute given. We shouldn’t even need to talk about that – because it is a prerequisite of what we do. So what you have in the Channel Islands is an industry created around substance and good governance and reporting, because our regulatory standards are higher than you’ll see anywhere. The G bit of ESG, within that context, should be a given. The Channel Islands are, as you say, better regulated than most places, and recent work – much of which you’ve been involved with – seems to have put them
ahead of the curve on sustainability and green finance. Does that all contribute to ensuring they can continue to be a financial centre of choice? I think so. I do think we have created something that is looked up to from certain quarters. I know the Caribbean jurisdictions look at us with quite envious eyes around what we’ve achieved. The Guernsey Green Fund has been very successful – it’s not just been about selling a green fund per se but it has given us a different narrative in the Channel Islands. What I worry about is the resting on the laurels that can take place. Guernsey rested on its laurels in 2010/11. We had a really good financial crisis – relatively speaking, of course – and there was this sense of ‘nothing needs to change here’. And then, lo and behold, four or five years later we hadn’t grown either. But the other area that I worry about – and I’ve touched on this already – is that we’ll end up destroying a lot of value around the climate discussion and action through unnecessarily complicating the whole, broader ESG measurement and analysis play. Everybody has to have some sort of ESG reporting nowadays but, as I say, once you get down to it, once you look under the bonnet, most of it is around environment in any event.
Name: Dr Andy Sloan Role: Founder of the International Sustainability Institute Channel Islands Studied: Cambridge University Lives: Guernsey Family: Married; two children Hobbies: Golf, taxi service and pet whisperer
How big a threat is climate change to businesses right now and going forward? It’s going to be a real commercial risk to your business if you do not take it into account. It’s also going to be a regulatory risk and it’s happening now – it’s not some ‘five years down the road’ target you’ve set because you’re associating climate with 2050. To be honest, I set up Netherite & Grunweldt almost to exploit that demand for my personal human benefit. But I am absolutely worried that everyone’s going to be asleep at the wheel and in five years’ time, we’ll have been having lots of chats about marketing funds and showing we’re measuring everything – and it will all be too late and we will have nothing to sell because we’ll have nowhere to sell it to. This is not a nice to have, it’s an ‘absolutely must do’, and the risk for me is that the Channel Islands is asleep. In congratulating ourselves about how well we’ve done so far, we risk taking our eye off the ball and we miss the Task Force on Climate-Related Financial Disclosures implementation. n
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Feeding the planet Joel Graves, Investment Director at Rathbones in Jersey, on embracing innovation to manage precious global food resources ON 28 FEBRUARY, the UN published the latest instalment of the Intergovernmental Panel on Climate Change report highlighting that global warming has had an “irreversible” impact on the world. More than 40% of the population are now deemed “highly vulnerable” to such change – albeit the report qualified this by suggesting that if we can keep the rise in temperature to below 1.5ºC, it would reduce projected losses. As a father of two daughters, I find myself increasingly thinking about their future and trying to give them the best opportunities – including by leaving them a world that is as beautiful and diverse as the one I have grown up in. The next generation is much more aware of the need to protect the planet than I was; my youngest daughter always reminds me to turn off the tap when brushing my teeth, while my eldest ensures our family recycles as much as possible. I now spend my Monday evenings sorting out my cardboards from my plastics, and I feel better for it. In this article, I want to look at how consumers, businesses and investors can act together to embrace innovation in managing precious global food resources – and take a bite out of climate change.
FOOD FOR THOUGHT Feeding the world’s roughly eight billion people has a huge impact on the environment. Leading studies suggest it accounts for about a quarter of all greenhouse gas emissions, contributing to global warming. With the global population projected to grow to 9.8 billion by 2050, the nations of the world won’t be able to reach their climate targets without radical change to the food system. This means changes in the way food is produced, in the type of food we eat and in the way it is packaged. Overhauling the food system will be crucial as we work towards a more sustainable future for our planet, and
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It’s becoming increasingly hard to meet the protein needs of a growing global population with food sourced from animals – we need alternatives
Advertising feature therefore a sustainable future for investors. We are seeing growing evidence of the links between good management of environmental, social and governance (ESG) risks and financial returns.
PRODUCING FOOD SUSTAINABLY As part of research by our ethical, sustainable and impact investing team at Rathbone Greenbank Investments into sustainable food production, as far back as 2003 we found that, although 60% of people wanted to buy local food, only 3% actually did. The price premium of organic and local food put off shoppers. A lot has changed since then, as consumers, producers and investors now recognise the impossible demands we have been placing on our planet. We all want to produce food in a more sustainable way – but it’s difficult to know where to start and what exactly ‘good’ looks like. Public awareness has soared and, according to the charity Food Foundation, it’s now the major supermarkets that are publishing more clearly defined targets and disclosing more performance data than other food retailers. This is a great example of responsible capitalism at work. Companies are taking a long-term view and finding the opportunities that are out there to generate better and more sustainable financial returns, while contributing to resolving some of the big problems facing our world.
SUSTAINABLE EATING HABITS It isn’t just a question of how we produce food – the type of food we eat matters too. It’s becoming increasingly difficult to meet the protein needs of a growing global population with food sourced from animals – such as meat, dairy products and eggs – and we need alternatives. Assuming the world’s population reaches 9.8 billion by 2050 as predicted, demand for animal-based food is expected to increase by 80% from 2006 levels, with beef increasing by 95%. According to a 2018 study published in the journal Science, avoiding meat and dairy products was the single biggest thing an individual could do to help reduce environmental harm – more than reducing air travel or buying an electric car.
GREEN PACKAGING It also isn’t just what we eat and how we produce it that matter, but how it’s packaged as well. Plastic packaging is everywhere, because it’s cheap, lightweight and durable and serves a wide range of important functions. And it will have an impact on our environment for generations to come. Research in the July 2017 edition of the journal Science Advances revealed that the vast majority of synthetic plastic
If we continue to live beyond our planetary means, environmental risks will inevitably translate into financial and social risks
produced from the early 1950s to 2015 — 6.3 billion of a total 8.3 billion tonnes — was highly durable waste. UK consumers alone were discarding about 35 million plastic bottles a year, which will take an estimated 450 years at least to degrade. But solving this problem isn’t simply a case of avoiding companies with any kind of exposure to plastic. Plastic use is a complex issue and focusing too narrowly on the product could simply replace one problem with another. One major challenge is finding alternatives to plastics. Very little of the plastic packaging produced in Europe is reused and only around 40% is collected for recycling. A report published in 2019 by DS Smith (a producer of recycled paper and packaging) in partnership with White Space Strategy, found that 1.5 million tonnes of plastic (of a total of 20 million) could be replaced each year from just five areas of supermarket packaging across Europe.
TAKING ACTION Greenbank’s research in December 2020 showed that 37% of people had reduced their consumption of single-use plastic in the past 12 months, and 23% were trying to buy fewer consumer products. When choosing products or services, more than one in 10 (13%) said they have made efforts in the past year to only buy eco-friendly brands where possible. This growing awareness of the power of the consumer is having a direct impact on the businesses serving them, and some are committing to huge change in the drive to reduce packaging waste and the environmental damage it causes. Not-for-profit charity Waste & Resources Action Programme (WRAP) and the Ellen MacArthur Foundation have developed a simple framework to help design systems that cut waste, recycle more and reduce the consumption of resources. Using fewer resources to make goods and designing them to be recovered and
repurposed is not only good for the planet, but it can be good for the bottom line – maximising economic value while minimising the negative impacts of production and disposal. A reduction in consumption could especially help where we’ve gone into ‘overdraft’ in terms of climate change, biodiversity loss, land conversion and agricultural expansion. If we continue to live beyond our planetary means, these environmental risks will inevitably translate into financial and social risks. Consequently, there are huge opportunities for reducing this risk and improving the outlook for long-term social and financial returns through innovation. As investors, we need to relieve pressure on companies to deliver quick returns and maximise short-term profits. Businesses, policymakers, investors and consumers all need to work together. There are huge opportunities for companies that react quickly and lead the way in sustainable food production and packaging, resulting in a healthy bottom line and a healthy planet. Working together, we can go a long way to taking a bite out of climate change. n
ABOUT THE AUTHOR
Joel Graves is an Investment Director in Jersey for Rathbones and has more than 16 years’ investment experience. He manages multi-asset discretionary portfolios for private clients, trusts and charities. Joel is a Chartered Financial Analyst (CFA) charter holder and a Chartered Fellow of the CISI, having passed the Certificate in Private Client Investment Advice and Management with distinction. In addition, he recently passed the CFA’s certificate in ESG investing.
Email: firstname.lastname@example.org Tel: 01534 740533
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Built around imprecise language and multiple acronyms, funds face a challenge to make ESG tangible. Regardless, actions speak louder than words when building ESG into investment fund strategies
AMID THE VOCIFEROUS noise around purpose, ESG and other ethical commitments, fund regulators and investors are increasingly suspicious of superficial claims of compliance with environmental, sustainable and governance standards that don’t stand up to scrutiny. But how can fund managers make ESG more tangible as an asset class? Industry figures argue that the concept must be baked into investment decisions from the outset for it to be an integrated part of fund strategy. And tangibility may improve over time, as solid evidence of returns is proven and repeated because of a proactive stance, says Dave Middleton, Director, Private Equity at Apex Group Jersey. “ESG is a lot broader than the impression you often get when listening to discussions,” he says. “Beyond the clearly important environmental aspects, it covers topics ranging from data security to board composition and much in between. “By having a focus on ESG, you’re controlling and mitigating a lot of risk that can enhance fund returns, and the best ESG approaches are ones that are proactive and not reactive.” For Alex Smyth, Co-Founder and Director of Oakbridge Fund Services, the most important aspect is that ESG becomes more credible in the investment fund space by putting the right processes in place. “We need to drive ESG policies and make them
22 April/May 2022
into actions as well,” he says. “It’s all very well having a policy ethos, but actually living it is a different thing altogether. There’s a delicate balance between adding an ESG element to funds but not being seen to be greenwashing. “We worked with one fund manager who had a robust reporting framework with relevant categories for ESG and, within that, subcategories that helped them to provide consistent and easy-tounderstand ESG reporting,” he adds. “Another way is to hire at a senior level within a business somebody whose focus and specialisation is ESG. “For a smaller business such as ours, this could be a consultant, but for bigger players, there should be an ESG specialist on the board.”
TRANSPARENCY IS KEY Public relations professional Nichole Culverwell, Director of Black Vanilla, is in no doubt that transparency is the most important factor. “It’s about showing what’s being achieved through that fund in the most accurate and transparent way, so it’s key to use consistent language,” she says. “To succeed in the climate change challenge, we need real change, not just marketing,” she continues. “What we don’t need is any risk of mis-selling. “In funds, there’s the potential for a mismatch between expectations for
investors and definitions, and this is where taxonomy regulation comes into play – being honest about supply chains within the funds as well as within the underlying investments.” Mark Cleary, Director at Zedra in Jersey, says: “ESG is an overlay-type strategy but that doesn’t mean it can’t be made more tangible – you simply need to take into consideration the lens through which you are looking at it. “ESG is principally angled at one of three objectives, including: strategy, which if used wisely can add what investment practitioners call alpha, outperforming the market based on skill; risk prevention or risk mitigation; or other non-financial goals.” Impact or thematic-type investing is designed to achieve a pre-defined, measurable goal, with an environmental, social or governance target, he adds. “The term used by the whole industry is ‘ESG integration’, and that means the people who are making the investment decisions need to have ESG baked into all the analysis they perform. “ESG factors must be looked at alongside, for example, growth rate, discount rate, prospects of the company and macro expectations. It all goes hand in hand, provided you are investing for the long term. “To become more tangible, most managers are now taking into account ESG
Words: Steve Falla
Alphabet soup www.blglobal.co.uk
April/May 2022 23
To succeed in the climate change challenge we need real change, not just marketing – what we don’t need is any risk of mis-selling
factors in some form or another, and I see that going only in one direction.” Like many financial services concepts, ESG is full of acronyms and there has been some vagueness around the terminology used. It is hoped that an emerging common vocabulary will aid transparency and clarify choice. In Smyth’s experience, lawyers are cautious even when advising clients on the name of a fund, particularly if the word ‘sustainable’ is being used and where this could be perceived as being misleading. “There are managers who would need to be careful about the way they are talking about their funds, in terms of marketing them, especially where you have an ESG theme but the fund is not actually investing in sustainable investments,” he says.
SHADES OF GREEN Cleary agrees. “It’s an alphabet soup. With ESG, there are no common definitions generally. Raters are speaking the same language at a high level, but whether or not
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their analysis is focusing in on the same things, I doubt it very much.” Cleary adds: “The EU taxonomy on sustainable finance will be extremely helpful – my view is that it will become a global benchmark to state what is green, what is deep green and what is a lesser shade of green. “The EU was informed a lot by science when determining what’s green, and what fits and what does not fit. There’s been negotiation and wrangling about what works in some countries as green and what works in other countries as green – for example, gas and nuclear are the subject of a heated debate, and France and Germany are on opposite sides.” “Players are not speaking the same language,” agrees Culverwell. “I think investment education is really important. To many people, sustainable equals green and that’s not always the case. They are two different things. “Another factor is where companies are transitioning and it’s cited in a document – for example, where legacy fossil fuel companies are transitioning into renewables. Where are they on that journey? We can all say we are transitioning but how tangible is that really? “Communicators have a role to play but the investment industry has to challenge and ask difficult questions.” Middleton believes that the EU’s published regulation on disclosures relating to sustainable investments and sustainability risks is positive in this regard.
“There does seem to be a move in the direction of standardising vocabulary, which is natural as guidelines and regulations are evolving,” he says. Alongside these challenges, rating agencies are increasingly expected to look at ESG through a similar lens as the regulatory regime evolves. “Ratings should be a signal to the investor to help them make choices and they are currently really confusing,” says Culverwell. Smyth believes data inconsistencies can create potential barriers to clarifying how ESG integration affects asset allocation. “We have a prospective client, very much ESG-focused – one of their strategies is to monitor carbons in soil. They would be considered experts in the ESG field,” he says. “Even with their long history of providing sustainable investment management services, they would still say that further regulation will help make ESG ratings globally comparable and transparent.”
THE RATER EFFECT However, Cleary sees any inconsistency among rating agencies as a potential positive. “There’s a ‘rater effect’. If a rater tends to like a company, they will rate them highly across all the factors they are rating,” he says. “It’s extremely hard to measure ESG consistently and reliably, but that provides opportunities. If there was only one ESG rating, and it was perfect, there would be no opportunity for investors to outperform based on ESG analysis. “Most asset managers rely on one of those ratings, but human analysis can be overlayed on that and, by having their own view, there’s an opportunity to earn outperformance. “It’s subjective and will remain subjective, but that’s part of this opportunity, I think, because investors desire added value.” As to the future for ESG in the funds space, Middleton questions whether new market entrants will be able to keep up. But he is not without hope. “We’re seeing a lot of engagement from our venture capital clients and it will be interesting to see the impact of enhanced ESG disclosure and reporting with investments in this asset class,” he says. “What will be the impact for start-up companies who perhaps have less resource? Will it stifle growth? Or, more likely, by
asking the right questions and providing a framework, will it add greater value and allow for quicker time to realisation?”
DRY POWDER OPPORTUNITY Smyth certainly sees potential in the institutional investment space. “There’s a lot of opportunity out there, with institutional investors increasing their allocations year on year for ESG. “That leads to a lot of dry powder that managers can benefit from and the ones that get it right will do very well. “One of the managers we are speaking to has four different fund strategies, which they are to launch over the next couple of years. It’s a sign that they see a lot of potential out there and to back this up they’ve secured a very large, reputable institutional cornerstone investor that will allocate a considerable commitment in one of their fund strategies.” Cleary points to a new ‘E’ emerging in response to current world events – ethical. “Asset managers, pension funds and the like are considering completely divesting out of Russia and not just sanctioned entities. There’s more time being spent thinking about where we would like our money invested and the risks around the corner,” he says. “Once it’s completely baked into investment decisions, ESG as a concept will disappear because people will just do it.” n
The EU taxonomy on sustainable finance will become a global benchmark of what is green, what is deep green and what is a lesser shade of green
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Together we can rewrite the playbook on authentic organisation responsibility. Deloitte guides organisations to a more sustainable future. We’re there with you every step of the way, connecting from the very beginning with insightdriven strategy. We help your business thrive with impactful transformation. Whether you are trying to measure your ESG impacts, build and deﬁne how to operate your climate strategy, report on your sustainable achievements, or build a more inclusive workforce, Deloitte has innovative approaches, digital solutions, and deep-industry experience to map your way forward. Contacts: Advisory & Assurance – Adam Cichocki email@example.com Audit – Theo Brennand firstname.lastname@example.org Tax – Martin Rowley email@example.com
ESG: the future rewritten There is increasing board accountability for ESG, with an expectation for transparency and authenticity, says Deloitte’s Matt Reynolds A GLOBAL TRANSITION is under way to create a new sustainable norm where people, the planet and economic prosperity are protected for the future. The transition was triggered in 2015/16, when the UN adopted its 17 sustainable development goals, the Paris Agreement was signed (which 192 countries plus the European Union have now joined) and the Financial Stability Board created the Task Force for Climate Related Financial Disclosures. Since then, numerous additional ESG frameworks have come to the fore in quick succession to act as the bedrock of corporate ESG reporting. The Channel Islands are taking a progressive stance. Guernsey is supporting green funds and amended its code of corporate governance to apply pressure on boards to duly consider climate change. And Jersey is advancing its carbonneutral roadmap and strategy to become a world-class sustainable finance centre.
A TIME FOR TRANSFORMATION Operationally, organisations should transform to: ●M aintain strategic advantage by driving enterprise value and protecting long-term viability ●M eet ESG regulation and deliver transparency to investors ● Address societal concerns and support a sustainable economy for the future. Respective transformation is of strategic importance, with boards becoming ever more accountable for consideration and action around these areas. This has been amplified and accelerated due to a shift in how businesses are being perceived by customers. ESG authenticity now goes hand-in-hand with client trust, confidence and shareholder value. This places wider responsibility on boards to act as stewards supporting a better future far beyond their organisation, while clearly demonstrating this wider commitment.
TRANSPARENCY DRIVING TRUST Complexities arise, especially in financial services organisations, where the value chain of underlying investments is being called into question. A greater level of transparency is expected to demonstrate that investments hold genuine green credentials.
Net zero claims are being similarly challenged, with companies being encouraged to disclose more granular transition plans. Adding to these complexities, no one universal ESG taxonomy or regulatory standard currently exists to deliver a unified benchmark. Wider standards are emerging – for example, the International Sustainability Standards Board (ISSB) under the IFRS Foundation, the European Commission’s Corporate Sustainability Reporting Directive (CSRD) and the merged International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) under the Value Reporting Foundation. The direction of travel is clear. It is very likely regulatory reporting will become mandatory for organisations. Audits will include specific ESG attributes and respective assurance will be needed to substantiate that organisations are fully aware of ESG risks, that data included in metrics and targets is appropriately collated and reported, and that strategies are in place to positively contribute to climate, biodiversity, people, governance and a sustainable economy.
IMPORTANCE OF DATA Investors are increasingly interested in data that shows organisations have factored in risks related to ESG, and that longer term management of these risks is consistent and not at odds with financial performance. Data is being increasingly linked to organisational performance. Advancement of ESG data availability, including those that are scientifically based, reinforces the value of data as a business-critical asset. This data will deliver regulatory and investor confidence across the value chain. With organisations likely to be subject to assurance requirements in future, attention is being given to internal controls for ESG-
related data, ensuring that organisations can evaluate their systems and processes for managing this information through a risk-and-control lens.
EMERGING ROLE FOR ASSURANCE The audit committee has a key role in the consideration of reporting on internal controls and risk management, as part of ensuring that emerging mandatory disclosures represent a fair, balanced and understandable assessment of progress. The committee also highlights if the impact of climate change has been adequately reflected in the financial statements. Beyond this, the audit committee’s considerations may extend to a gap analysis against ESG regulations, materiality of climate risks and a determination whether ESG assurance is robust and independent. As and when ESG assurance becomes mandatory, there will be a recalibration on ESG benchmarking, with organisations that have established truly robust ESG strategies, governance, risk management, metrics and targets being positively valued by society and shareholders.
STARTING YOUR SUSTAINABLE JOURNEY The extensive nature of ESG cannot be underestimated. It encapsulates employment standards, diversity and equal opportunities, social inclusion, board composition, business ethics, executive remuneration, regulatory compliance, resource use, decarbonisation and value chain transparency. This requires wide-scale organisational transformation, from technological enablement, data and analytics improvements, to process and operating model optimisation and heightened reporting and compliance. n
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April/May 2022 27
ESG’s onward march the noise surrounding ESG has been getting louder for some years, but recent events – from the pandemic to the conflict in Ukraine – are likely to fuel plenty more growth Words: David Burrows
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IT’S BEEN A tumultuous year. Already we
have seen a raft of storms and droughts linked to climate change and global warming, while the fallout of the global pandemic lingers on and a realistic threat of a war across Europe looms. During dark times such as these, investments that deliver positive outcomes for people and the planet are more important than ever. As a result, ESG investing has moved from niche to mainstream in recent years. In a world of 24-hour news, social media and message boards, companies have nowhere to hide. How and where they operate is far more visible than it once was. And investors can make their own calls on environmental, social impact and governance factors. But given that ESG investing has made it to the mainstream, is there room for further growth? Patrick Thomas,
SMALL CAP POTENTIAL As Thomas points out, companies that are focused on climate solutions or related to social change are often in the small and mid-cap universe. And it has predominantly been thematic investors who have been buying into them. But he believes it will be a much broader base of investment managers buying these stocks – which have been excluded from the major indices – going forward. The conflict in Ukraine has thrown an even greater spotlight on ESG factors,
The typical ethical view on defence companies is that you don’t invest – but does that change now in relation to Ukraine?
Investment Director, Head of ESG Portfolio Management at Canaccord Genuity Wealth Management, thinks so. “You do read about huge flows of money going into ESG in 2020/21. But if you strip out the big companies such as Tesla, there is still a long way to go in terms of growth opportunities in this space.”
not least with oligarchs moving their yachts as assets are frozen, Chelsea Football Club hitting the market and oil majors pulling out of partnerships with Russian producers. Thomas agrees that the dynamic has changed as a result and a number of questions have arisen. “The typical ethical view on defence companies is that you don’t invest – but does that change now in relation to Ukraine?” he asks. “The divestment by the major oil companies has been interesting, too. It has happened incredibly quickly – the concern now is around who these assets are sold on to and the implications of that.” He adds that ESG has and will become even more influenced by geopolitical factors. “Countries will become a lot more insular, and this will have profound implications for sectors such as clean energy and food production,” he adds. “Whether it’s growing mangos in London, vertical farming or agtech innovation, these are areas that will increasingly attract investor interest.” James Hamelin, Director, Institutional Banking, at RBS International, agrees that momentum is building in the sustainable finance space. “The first sustainability linked loan that RBS International completed in the Channel Islands was in June 2020, when we participated in a club facility for a large private equity client,” he says. “Since then, more and more fund managers are seeking to understand how
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Stephen Le Lievre, Senior Investment Manager at the firm, says the direction of travel for responsible investing is clear. “More investors are exploring funds that benefit society in addition to generating returns, now more than ever post-COP26. “The Responsible Investment Hub for advisers provides a single destination that informs and helps open up those conversations. “We know that advisers want to spend more time on their clients and running their businesses. This means they need the right information delivered in the most efficient way possible. Creating the Responsible Investment Hub was our next step in opening up conversations around responsible investing.”
Whether it’s growing mangos in London, vertical farming or agtech innovation, these areas will increasingly attract investor interest
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these facilities work and, as relationship directors, we are having plenty of proactive conversations with clients to introduce them to this growing area of the market.” Hamelin says he has seen funds introduce a variety of sustainability performance targets (SPTs) and key performance indicators (KPIs) across the E, S and G spectrum, covering both their fund portfolios and corporate entities. “We work closely with the manager to review their sustainability strategy and understand what targets are relevant to their business,” he says. “When those targets are selected to insert into the facility, we are crucially looking to ensure that they go beyond the business’s usual trajectory so that they are sufficiently challenging.” Brooks Macdonald International launched its Responsible Investment Hub to Channel Islands and international investors last year. So how has it fared in supporting investors in their ESG decisions?
David Postlethwaite, Sustainable Finance Lead at Jersey Finance, identifies specific trends relating to sustainable finance flows on the island. “More Jersey funds are tapping into ESG-linked lending facilities. This is driven in part by banks looking to scale up sustainable lending and managers looking for access to discounted funding. “It is another way in which ESG principles are being incorporated into fund structures, including in the alternatives space that Jersey services.” Postlethwaite says Jersey hosts a number of infrastructure funds that are helping to support enormous global capital needs as the world seeks to decarbonise its future. He cites Quinbrook’s Low Carbon Power Fund, a Jersey fund investing more than $1.6bn in energy transition. He also points to Foresight Solar Fund, a Jersey-registered, closed-end investment company investing in a diversified portfolio of ground-based solar PV assets in the UK, Spain and Australia. With a £603m market capitalisation, it is the largest UK-listed dedicated solar energy investment company. These funds exemplify the role of finance centres such as Jersey as cogs in the global sustainable finance mechanism – and Postlethwaite believes Jersey has an important role to play. “When Jersey was completing its first sustainable finance stock-take last year as part of the FC4S Assessment Programme, we noted that nine out of the top 10 managers/ sponsors of Jersey infrastructure funds were signatories to the UN’s Principles for Responsible Investment. “This represented nearly $7bn under management in Jersey-domiciled infrastructure funds in 2020.”
GREEN BONDS The continued acceleration of green issuance drove the green bond market to $517.4bn in 2021, according to Climate Bonds Market Intelligence.
The conflict in Ukraine has thrown a spotlight on ESG factors, with oligarchs moving their yachts as assets are frozen
Jersey is well placed to support this acceleration in sustainable capital markets, according to Postlethwaite, who also cites the Channel Islands’ stock exchange TISE, and its TISE Sustainable segment, as a further boost to capital flows. Notable deals include Novelis Green Bonds and the listing of German sustainable wood manufacturer PCF and the world’s largest sustainable property developer, Canary Wharf Group Investment Holdings, on TISE Sustainable.
SUSTAINABLE LISTINGS Robin Smith, Partner and Head of Banking and Finance at Carey Olsen in Jersey, agrees that the TISE Sustainable segment is gaining traction. Carey Olsen acted as listing agent for Canary Wharf Group and PCF. “As the largest listing agent, we regularly see bond issuances that we consider could be listed on the TISE Sustainable segment but are currently listed on the regular segment of TISE. “As there is no additional fee, it would be natural for some of these to shift to TISE Sustainable in the future.” He adds: “We have also seen our local banks offer sustainable finance products to consumers in the Channel Islands, including HSBC’s green loan to support sustainable purchases such as energy-saving home improvements. “That includes a commitment by HSBC to plant hedgerows or trees for every approved loan. Other banks have similar products and we expect the green lending books to increase in size significantly over the coming years.” Can Jersey foundation structures support positive social outcomes further afield, such as in developing economies? Postlethwaite says he has seen strong interest in the use of Jersey foundations in structures that combine elements of collective investment funds, impact
investing, blended finance/international development and philanthropy. “One great example of this is the African Women Impact Fund (AWIF) initiative, which aims to raise up to $1bn over 10 years for women fund managers, who in turn will invest in high-impact businesses and projects across Africa. “This was launched by Standard Bank in partnership with the United Nations Economic Commission for Africa,” he says. “We are aware of several other similar structures using Jersey foundations that are in the pipeline.” Smith also namechecks the AWIF – Carey Olsen assisted Standard Bank Group with its establishment. “The AWIF aims to address gender inequality by creating a sustainable investment platform to grow the number of women asset managers in Africa – currently less than 5% of asset managers across Africa are women – and that’s a fantastic initiative. “Other foundations that we have helped establish include those backing social impact projects in developing countries, concentrating on relief of poverty in Africa and Asia, as well as promoting education in under-developed communities. “The recognised incorporated status of foundations is very attractive and means they can easily operate around the world.”
CHALLENGES AHEAD One of the main challenges for all participants negotiating sustainabilitylinked facilities, according to Smith, is that the number of previous deals and therefore precedent documents is far, far fewer compared with a regular capital call facility. This means that there is no well-established market standard to follow. “Having said that, as the purpose of the introduction of the ESG margin ratchet is to make positive ESG changes, this influences negotiations, making
Jersey funds tap into ESG-linked lending facilities • FSN Capital VI – launched last year with an ESG-linked capital call facility, which links the margin to improvements in ESG strategy and governance, carbon footprint and diversity • Triton’s first ESG-linked financing – establishing a €1.455bn syndicated facility linked to various ESG-related performance indicators • FSN Capital VI – launched last year with an ESG-linked capital call facility, which links the margin to improvements in ESG strategy and governance, carbon footprint and diversity
them highly collaborative,” says Smith, adding: “The devil is in the detail and transitioning the economy is much more likely to occur if ESG change is specific, measurable and verified.” Smith explains that precisely setting the ESG metrics and their frequency and mode of measurement will involve expertise on both sides. “There is always a balance to be struck between lenders’ desires to ensure that the margin ratchet translates into material positive ESG outcomes and the operational restraints of the fund.” Smith adds: “The role of an independent verification agent is critical and the lender can rely on that third party to confirm compliance with the agreed ESG metrics rather than having a more cumbersome internal assessment process.” n
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Responsible investment – a capitalist approach Harry Briggs, Director of ESG Reporting and Assurance at KPMG, sets out the stages of the responsible investing journey LAST YEAR, THE number of signatories to the UN Principles of Responsible Investment (PRI) increased to more than 4,400 asset managers and asset owners. Two years ago, it was nearly half that. Responsible investment has hit the mainstream – what was once the preserve of impact investors is now being embraced by all investors. Many people hear words such as responsible investment, ESG or sustainability and assume it’s all about sacrificing return to do some good. That is not the case. Larry Fink, CEO of BlackRock, described responsible investment in his 2022 letter to investee CEOs as “capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on to prosper”. In other words, responsible investment enhances returns. Like most forms of capitalism, responsible investment is a market that needs a degree of regulation in order to operate efficiently and be trusted. Regulation is the stage of the responsible investment journey that we are at right now. The PRI launched in 2006 as a voluntary international organisation. It has become the byword in responsible investment, making the case for it, and it has succeeded. Society wants its money to be a force for good, forcing pension funds and retail offerings to adopt responsible investment. In turn, asset managers have had to adapt too.
Governments have picked up on the scale of this activity and are rolling out regulation as a result. The purpose for regulation is two-fold: to ensure fair, trustworthy markets that protect investors and to achieve broader policy aims such as achieving net zero to halt climate change. The EU tackled this through the Sustainable Finance Disclosure Regulation. Without going into detail (much has been written on this elsewhere), one of the key features is the classification of investment products into those who do not take a responsible investment approach, those who do and those who seek a specific and deliberate beneficial impact. As a result of this, most investors look for products that adopt a responsible investment approach but stop short of becoming a fully-fledged impact investment.
WHAT DOES THAT LOOK LIKE? Mainstream responsible investment is integrated into an underlying investment strategy. It isn’t a strategy in itself – that would be an impact investment such as investing in renewable energy. Instead, an asset manager might incorporate specific steps into their investment and ownership approach. Negative screening or exclusionary lists are a typical first step. These are red lines the asset manager will adopt so that they don’t invest in anything on the list. Common examples are firearms or tobacco manufacturers.
These ought to be tailored to the investment strategy. For example, an asset manager with strategies focused on the apparel sector doesn’t need to add tobacco or firearms to their exclusionary list. Instead, they should focus on red lines within their sector of focus. These can be jurisdictional (because of a lack of labour laws or other human rights concerns) or they may be based on certain harmful materials. Whatever the red lines are, they should be relevant. Once an opportunity is through the screening process, it then comes down to due diligence. This is a familiar step from a financial or legal perspective but sustainability due diligence is rapidly becoming mandatory across firms for all investments. It requires a materiality assessment of the target to identify the specific sustainability risks and opportunities for that company. This is where the potential for value creation resides. The transition of a company from poor to good sustainability performance can enhance exit values. The due diligence should serve to inform future ownership activity as well as identify risks that potentially can’t be addressed (and would therefore throw the deal into doubt). Once acquired, the ownership phase kicks in. This is the engagement the investor has with the investee to address their sustainability performance. This might include plans to reduce greenhouse gas emissions to net zero, for example. Whatever the material sustainability issues are, addressing them is the key to unlocking value. Adoption of this process is now widespread – spurred on by regulation in Europe, the UK and soon the US and other key markets. Responsible investment is a capitalist agenda focused on creating value, and regulation is coming into place to build trust in that process. n
If you would like to find out more, please email Harry Briggs: email@example.com
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Home truths Everybody’s talking about ESG and the threat it poses to firms’ reputations and business models. But the Channel Islands has its own set of ESG risks Words: Alexander Garrett
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IN A WORLD where social, ethical and environmental considerations increasingly provide the background against which businesses operate, and responsibility is seen as an imperative rather than an option, it’s hardly surprising that most companies start off by reviewing their own operations. That could mean establishing robust practices against money laundering, monitoring remuneration levels on a gender basis or simply not leaving the office lights on overnight unnecessarily. But if the clients who pay your bills aren’t demonstrating the same responsibility – and could even be involved in criminal activity – that represents a risk to you on a number of levels. And it’s risk that Channel Islandsbased firms should be acutely aware of, says Malin Nilsson, Managing Director in the financial services compliance and regulation team at Kroll in Jersey.
“There’s a lot of demand for money to be invested sustainably, and that has prompted a lot of regulation around sustainable investing,” says Nilsson. “But when we look at Jersey’s financial services industry, a lot of it is actually involved in incorporation, domiciliation administration, bookkeeping and accounting for trusts or corporates. And some of these corporates could be mining companies. They could be logging companies, they could be fisheries.” What if, Nilsson asks, your own squeaky clean ESG credentials are undermined by those of the companies and assets that you serve? It’s time, she says, for Channel Islands firms to start taking a much more proactive approach in understanding and managing these risks and to develop an appetite for ESG risk that is reflected in their client base. That might seem like a minefield but, says Nilsson, it’s not as alarming as it
would be if they were doing tax evasion or fraud,” says Nilsson. There’s the potential impact on your own reputation, too: if it got out that your client was engaging in slave labour or polluting the environment, that could reflect on your reputation in a profoundly negative way.
SYSTEM-WIDE RISK Michelle Ryan, Director at ESG-reporting specialist True.ESG, believes there is even greater risk – risk to the jurisdiction itself. “We’re talking about the integrity of our financial system. If our trustees are holding assets that are either stranded or become worthless or uninsurable, that presents a risk to us as a stable finance centre,” she says. And if, for example in the case of pension fund trustees, there are beneficiaries involved, it presents a litigation risk. “They could sue you for not taking them out of an asset. It’s a very real risk to our economy.” Jersey may be a relatively small jurisdiction with fairly small companies, says Ryan, but both are capable of having a disproportionate impact. As she points out: “Those companies have a huge reach internationally because they administer hugely varied assets, including those that they could encourage to transition
If trustees are holding assets that are either stranded or become worthless or uninsurable, that presents a risk to a stable finance centre
sounds. “The anti-money laundering regulations that have come in over the past 15 to 20 years mean that firms already need to understand what their clients do in many respects. “They need to understand the rationale of their activities and the assets that they hold. They need to risk rate them. And actually, it’s not a huge leap to say that they have to understand what their clients do from an ESG perspective.” The risks of failing to do this come on a number of levels, however. First of all, you could be judged to be a partner in illegal activity. “If your client is engaged in environmental crime, then you are facilitating money laundering, just like you
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if a company has better remuneration policies or governance, that creates fewer risks and fewer opportunities for financial loss
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to low carbon and to transition away from carbon- intensive activities to be more environmentally or socially sustainable.” Therefore, it’s beholden on all companies administering assets much greater than themselves to consider the credentials and risks posed by those they engage with, both upstream and downstream. Pension fund trustees, for example, don’t usually make investment decisions themselves – but it’s not good enough for them to wash their hands of any responsibility for investment strategy. “If the pension trustee isn’t factoring in the full set of data, and challenging the managers around those decisions, in the best interest of the beneficiaries of the pension scheme, they could also be liable for not taking action when they should have done,” says Ryan. In one case currently being pursued in the High Court in London, university lecturers Ewan McGaughey and Neil Davis are suing the directors of the Universities Superannuation Scheme (USS). Part of their action argues that USS’s failure to divest from fossil fuels will cause “significant financial detriment to the fund and the planet, against the interests of the company and scheme members”. They claim: “Fossil fuels have been the worst-performing asset class every year
since 2017, and their continued use is incompatible with the UK’s international obligations to end climate damage, including under the Paris Agreement 2015.” Nilsson and Ryan agree that pursuing positive ESG impacts is not in conflict with achieving the best financial performance, long considered an aspect of fiduciary duty. “There are studies to show that ESG leads to better longer-term performance,” says Nilsson, “but I think that fiduciary duty now has to include looking at other factors such as ESG.” Ryan adds: “It’s obvious: if a company has lower staff turnover, lower litigation costs, fewer labour rights issues and product recalls, has fair terms with its employees and its customers, and a lower carbon footprint, then that will usually translate to lower cost. And if a company is managed to have better remuneration policies or good governance, that creates fewer risks and fewer opportunities for financial loss, and therefore translates into better performance.”
ESG CHECK So how, in practice, do you check the ESG credentials of the assets and companies that you may be administering? At the very least, a degree of curiosity and due diligence is required in order to find out what is already in the public domain. It’s not realistic to carry out a forensic investigation into every company you do business with, says Nilsson, but it’s possible to weigh up what you know about their operations against what the glossy brochures say. Ryan says her firm relies on published ESG data and supplements that, with proprietary research by the likes of MSCI, can capture up to 420 data points, ranging from litigation against the company to staff action on labour issues or technical product recalls. “It’s our job to present that information to our clients and help them understand it,” she says. In comparison with other financial centres, Jersey and Guernsey may not be at the very front of the pack in assessing these kinds of ESG risks, but they are better than some jurisdictions that provide registered office and address services, says Nilsson. Firms in the Channel Islands tend to have a more rounded relationship with clients. And the objective is not simply to get clients to divest of any assets or operations that are deemed to be a risk. “All you’re doing by divesting shares is passing the buck on to somebody else,” says Ryan. “If you’re a trustee that owns a mining company, you’re in a unique position to be able to work with that mining company to perhaps improve its ESG credentials to help it become a positive force for good in the world and a positive impact on its environment.” n
Fad or future? Ashley Quenault, an English Solicitor in the Business Law team at BCR Law, examines the impact of environmental, social and governance issues on businesses THE PHRASE ‘ENVIRONMENTAL, social and governance issues’ (ESG) is moving from buzz-phrase to mainstream language. Against that backdrop, directors and trustees must be mindful of how their respective duties are evolving and how their actions or inactions will be scrutinised. While there is no single legal definition of ESG, examples of the issues that could fall within ESG include: ●E nvironmental – considerations of climate change, emissions, energy efficiency, hazardous waste and resource depletion ● S ocial – considerations of human rights, modern slavery, working conditions, both within the organisation itself and its supply chains, health and safety issues, employee relations and diversity ●G overnance – considerations surrounding executive pay, anti-bribery and corruption policies, board structure, independence and diversity, and transparency.
DIRECTORS’ DUTIES AND ESG Directors will be familiar with the duty imposed on them under the Companies (Jersey) Law 1991 to act in the best interests of a company. Satisfying this duty could include giving adequate consideration to relevant ESG issues to the company. This is evidenced from the recent Supreme Court of England and Wales judgments in two cases – Vedanta Resources Plc v Lungowe and Okpabi v Royal Duct Shell plc – which are likely to be persuasive in Jersey. These emphasise that directors of parent companies should be increasingly concerned about their accountability and potential liability for the actions or inactions of their subsidiaries for ESG-related issues. While the decisions from these cases arose from environmental damage, the principles discussed may apply to other ESG-related issues. So, to minimise the risks of directors being involved in ESGrelated litigation, they should: ● S eek advice at an early stage in relation to existing and developing ESG policies ● S tress-test and conduct risk assessments to anticipate and mitigate potential risk areas
● Identify any existing ESG risks from subsidiaries and consider what checks and balances are in place in relation to those risks at subsidiary level ● Actively review and manage reputational risk arising from ESG issues ● Engage with shareholders to understand their particular ESG requirements ● Educate and train directors and employees relating to their legal and regulatory obligations around ESG issues and best practices ● Embrace change in order to maximise performance, reputation as well as operational efficiency.
as a result of investing for ESG gains provided that: ● The loss was not caused by the trustee’s negligence ● The trustee complied with the terms of the trust instrument ● The trustee complied with its statutory and indeed their common law and fiduciary duties ● The trustee acted in the best interests of the beneficiaries when deciding to invest for ESG gains ● They have a suitable investment policy that is regularly reviewed ● They operate a professionally run portfolio that is regularly reviewed, along with the performance of the relevant investment manager. Trustees exercising the power of investment to maximise ESG gains should: ● Review all trust investments more often than usual and consider whether they should be diversified or varied ● Keep written records of consideration of any advice obtained ● Actively reach out to beneficiaries in order to address the health of the portfolio and any action being taken to limit/reduce exposure ● Actively monitor performance of professional investment managements and consider if an intervention/change is required ● Revisit any contemplated investments to ensure that they are still appropriate.
TRUSTEE DUTIES AND ESG
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Trustees are required to act with due diligence, as would a prudent person, to the best of the trustee’s ability and skill. In particular, trustees are obliged to, so far as is reasonable, preserve and enhance the value of the trust property. In addition, a trustee is duty bound to act in the best interests of their beneficiaries. The penalty for failure to adhere to these duties can be personal liability to make up the difference between the return achieved and what the beneficiaries could have reasonably expected. However, most trusts’ investment horizon is 30 years or longer, which could well insulate a trustee against changes of fashion in financial markets. A trustee should not be liable for any investment losses caused to a trust fund
Our Business Law team at BCR Law works with local businesses across all sectors. We advise on any number of contentious and non-contentious issues, from reviewing and updating your terms and conditions and policies and procedures, to guiding business owners and managers through the various legal and regulatory issues that come up when running a business. n
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This article does not constitute legal advice. For advice or further information, please contact us: Ashley Quenault, English Solicitor Tel: +44 (0) 1534 760 856 Email: firstname.lastname@example.org
April/May 2022 37
Family matters In 2022, half of all investors will move money into ESG funds, confirming that this space is now firmly on the radar of private clients. But what’s driving demand and what should clients and advisers keep front of mind when embarking on the journey?
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ALMOST HALF (46%) of people surveyed in Hong Kong, mainland China, Singapore and the UK believe their portfolios will be entirely made up of sustainable investments in the next three to five years. So says research commissioned by HSBC Asset Management last year, which also found that 82% of respondents rate sustainable, environmental and ethical issues as quite or very important. “Our economies are no longer purely dependent on governments,” says Lucia Perchard, Head of Family Office Product at Apex Group. “Instead, they increasingly rely on well-functioning businesses that create employment opportunities and provide goods and services locally as well as for export. “People care about where these have come from, how they are generated and the effects they have on the world around them. This has driven changes in buying habits, as consumers are more alive than ever to their purchasing power. “They are choosing who they want to work with or buy from. This then effects the returns on investments made, so knowing the ESG rating of a business can assist in understanding some of the risks associated with it.”
TREADING THE RIGHT PATH Despite its popularity, ESG is a far from straightforward area to navigate. Elizabeth Shaw, Senior Associate at Bedell Cristin, explains how the role of trustees in this space has changed in recent years.
Words: Sophie McCarthy
“ESG is certainly experiencing exponential growth,” says Andrew Munro, Guernsey-based Counsel for Carey Olsen. “It’s becoming much more mainstream, particularly with the second and third generations of wealth holders, who are very conscious about ethics. “People are estimating that around $30tn is currently invested in the ESG space, and that’s expected to increase to something like $50tn in the next 20 years. This movement is here for the long term.”
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GLOBAL BUSINESS: A VIEW FROM THE CHANNEL ISLANDS
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many,” she says. “Half of the world’s net wealth belongs to the top 1%, with the top 10% of adults holding 85%, while the bottom 90% hold the remaining 15% of the world’s total wealth. Those 90% are looking to the top 10% to make the right choices.” Melanie Griffiths, Head of Client Solutions, Private Wealth, at Equiom, says: “Ultimately, a discussion around ESG is a discussion around the family’s values. It can engage various family members more than talking about benchmarks, sharp ratios and historical volatility. “At a time when so much wealth is transitioning, discussions around ESG can provide a common anchor to relate to investments in a more meaningful way across generations,” she continues. “ESG has brought to the table individuals who previously had no interest investing, despite the fact that these decisions have the potential to significantly impact their lives. This is something that should be very much celebrated.”
PIVOTAL MOMENT Griffiths believes, however, that we’re at a crucial moment in this space. “When it comes to performance, up until now ESG stocks have been in line with the wider market or have even outperformed them,” she says. “But with oil prices rising steeply and the current geopolitical situation resulting in increased defence spending and energy prices soaring, it may be that ESG stocks underperform the wider market.
It’s easy to support ESG when ESG makes money. [today] could be the first true test of investors’ commitment
“It’s easy to support ESG when ESG makes money. This could be the first true test of investors’ commitment.” If we are at a point where clients potentially have to choose between purpose and profit, what do clients and advisers need to be aware of? “As at any time that people are looking to make financial investments and wealth planning decisions for their future, clients are rightly expecting their banks and financial institutions to be in a position to provide expertise,” says Emma Bunnell,
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“The duty of the trustee is to act in the best interests of its beneficiaries,” she says. “Historically, this meant their financial interests. This left a question mark over investing in something that potentially won’t provide as much financial return as another investment, but might instead offer environmental or social returns – and whether doing so aligns with the obligations of trustee.” This mindset has changed, she says. “There’s now an argument that to not take into account ESG factors would be a breach of your duty, because if you’ve not done so you’re exposing yourself to a risk. “But today we also have that broader spectrum of opportunities, such as impact investing, where the aim is to make a tangible difference, and here we might not get those financial returns we now associate with ESG, which today is widely considered to be performing well.” “Even the term ESG itself isn’t very developed and pinned down,” explains Munro. “It seems to have taken hold as the main moniker for an area that covers a number of factors that ultimately feed into sustainable investing and protecting the world. “But it also encompasses socially responsible investing and impact investing – which can actually feel much more like philanthropy.” Perchard believes an awareness of all of these forms of investing is vital in the private client space. “With great wealth comes great responsibility, and the actions of the few have significant effects on the
Discussions around ESG can provide an anchor to relate to investments in a more meaningful way across generations
“By deploying intelligent ESG data and insights,” says Perchard, “we can help our private investors drive capital towards ESG performance while influencing significant active change.” Head of Wealth and Personal Banking, HSBC Channel Islands and Isle of Man. “It’s important, therefore, that clients looking to make green investments are dealing with financial organisations that are experts in this landscape and who carry out sufficient due diligence in order to assess ESG credentials,” she continues. “Relationship managers must be able to demystify ESG investments, providing clear and simple explanations about how and why certain investments can make a material difference to the planet. “Wealth planners need to maintain an in-depth knowledge of the landscape and talking about sustainability should be the norm. Planners should make it a priority to understand their client’s point of view on ESG matters and look for investment opportunities to help them achieve their own individual sustainability goals.” Bunnell adds: “But as well as expertise, ESG adoption demands digital ease of access to solutions. HSBC’s online International Investment Centre, for example, provides funds that clients can explore at their leisure, such as low carbon, sustainable energy and climate change funds, which have been added to the platform in response to customer demand.” Apex Group, meanwhile, has developed an ESG ratings and advisory service to help investors unlock value and drive transformational change by offering a global, independent, end-to-end service for the private markets.
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EMOTIVE IMPULSE Griffiths highlights the need to counter ESG’s emotive appeal. “Advisers must guide clients through tangible considerations that need to be factored in – liquidity, volatility, price – and then let them weigh it all up and make their own decisions according to what they value most. “There is a lot of regulation coming out in this space, which will mostly stamp out unsubstantiated ESG claims,” she continues. “I expect ESG will get easier and cheaper to navigate, so it’s worth giving the industry a little time before making any long-term decisions. “In the meantime, it’s important to distinguish between a company’s impact and an investor’s impact, as these are not the same thing. An investor has most impact where capital is scarce (so typically illiquid investments). Where capital is not scarce, empirical evidence suggests that the most effective thing investors can do is use the voting rights that come with
shareholding to support ESG-friendly resolutions. This is something that can be implemented immediately.” “Today more than ever, wealth planners need to make sure they understand and are aligned to the values, as well as the financial goals, of their private clients,” says Perchard. “They need to be clear about the metrics, how they are measured and where investments are to be deployed. Most have a clear vision of the role they wish to play and the manner in which their wealth is to be deployed and returns generated. But, the metrics of ESG can be tricky, so engaging with professionals in this area will be vital.” There’s a wealth of ways in which investors can operate when it comes to ESG, depending on their individual goals, wants and needs. It’s a complex area, but there’s no shortage of specialists who can help private clients find their feet. “Wealth planners are building the foundations for the future success of their private clients and their families,” says Perchard. “So it is essential that future is a sustainable one.” n
Financial Services Compliance and Regulation Kroll’s global team of recognized experts provides financial services clients with end-to-end compliance and regulatory services, working alongside you to minimize risks, drive efficiencies, and ensure compliance. Kroll provides proprietary data, technology and insights to help our clients stay ahead of complex demands related to risk, governance and growth. Our solutions deliver a powerful competitive advantage, enabling faster, smarter and more sustainable decisions. With 5,000 experts around the world, we create value and impact for our clients and communities. To learn more, visit www.kroll.com. Contact 3rd Floor (North Suite), 7 Esplanade St. Helier, Jersey JE2 3QA Channel Islands +44 1534 603130
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While many investors focus on the returns of ESG portfolios, others are looking at businesses that will need to adapt their business model to be more ESG-positive but are yet to do so. So how do you get on top of the wave that is momentum investing?
Riding the momentum Words: Gill Wadsworth
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HUMAN-INDUCED CLIMATE CHANGE is causing dangerous and widespread disruption in nature and affecting the lives of billions of people around the world, despite efforts to reduce the risks. Our actions today will shape how people adapt and nature responds to increasing climate risks. This is the view from the latest Intergovernmental Panel on Climate Change (IPCC) report, released in February. It makes for grim reading, and suggests that efforts to mitigate climate change – much of which were promised as recently as November 2021 at the COP26 Summit in Glasgow – are inadequate. The role of the financial sector will be critical to propelling capital towards projects that manage environmental risk to prevent global temperatures increasing by more than 1.5ºC. Policymakers are placing increasing emphasis on environmental, social and governance (ESG) investment strategies as part of the solution, resulting in considerable growth in global sustainable fund assets. According to recent research from Morningstar, investors poured $142bn into ESG funds in the fourth quarter of last year, representing a 12% increase on the third quarter to reach $2.74tn in assets at the end of December 2021. Yet not all investors are rewarded with outperformance from ESG funds.
Morningstar also reports that, across all asset classes, 49% (70 of 144) of sustainable funds outperformed their respective category averages. This was led largely by equity funds, among which 59% (52 of 88) outperformed their peers. It is incumbent on asset managers to find more effective ways of gaining returns from sustainable investment. And according to Mark Cleary, Director at Zedra, this means moving away from investing in stocks with demonstrable ESG credentials in favour of those that are on the cusp of a transition to more responsible practices.
MOMENTUM STRATEGY “A good investment is not necessarily the same as good future profits; it very much depends on the entry point,” explains Cleary. “Often with mainstream ESG strategies, the portfolio is tilted towards
for which they are responsible. This should make it easier for advocates of ESG momentum investing to identify stocks with the potential to deliver value in future.
IDENTIFYING OPPORTUNITY However, in a world awash with ESG ratings agencies and sustainability data that is not always verifiable. Identifying a company that’s genuinely on the up in sustainability terms is not always easy. Oliver Crowley, Investment Funds Partner at law firm Pinsent Masons, comments: “As the UK government has noted, there is not yet a commonly agreed standard for what a good-quality transition plan looks like. “In all likelihood, however, as with the EU’s regulation on sustainability-related disclosures in the financial services sector previously, they will be expected to comply in some form before the guidance and the
It’s not just a company’s ESG policy that matters, it’s the individuals they are hiring as well
the ESG leading [stocks] that already have good credentials. So arguably, their prices bid up already.” An alternative to this ‘best in class’ approach is an ESG momentum strategy, which chooses stocks based on their ability to gain value by improving their sustainable credentials. Cleary says: “If you can identify suitable assets at an early stage – before they really get on their ESG journey, ahead of being priced up – then in theory you can benefit from the future performance of the company, as well as investing in assets with wider benefits to society and the environment.” At last year’s COP26 summit, the Chancellor, Rishi Sunak, said that all UK financial institutions and public listed companies would be obliged to publish plans detailing how they would be reducing the emissions they respectively finance or
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Capitalising on ESG momentum In 2019, Harvard Law School produced research to demonstrate the efficacy of ESG momentum-based strategies. In 2013, researchers built a model ESG portfolio, which they regularly rebalanced based on data from ESG ratings provider Sustainalytics. From March 2013 to January 2019, an investor who bought the top 30% ESG-rated companies would have outperformed the STOXX 600 index by more than 9%. However, if they had bought companies with a positive ESG momentum – those that improved on their ESG rating by more than 10% year on year – they would have outperformed those same 600 European stocks by 23.5%. The researchers also found that the average outperformance of companies with improving ESG ratings versus the STOXX 600 was more than 3% in each of those years, with a cumulative outperformance of more than 20%. The Harvard research concluded: “We have found that within the top ESG-rating portfolio of approximately 150 stocks, those names that showed an annual positive change in ESG rating of more than 10% did perform better than those with either neutral or negative momentum over our performance period.”
the likelihood of that score improving in the future as a result of changes to policy and processes. Metcalf points to the industrials sector as a good source of potential momentum stocks, noting that many of these companies will be forced to adapt their processes to be more sustainable. “In the future, in a net-zero, low-carbon world, we still need to produce all these commodities. If you think about steel, for example, the questions for momentum investors are: which company can produce steel most sustainably; and how can we make production less energy-intensive?” Metcalf says. “It’s important that you think about how they’re sustainable. We aren’t necessarily looking to change the business model completely, but find ways companies can operate more sustainably.”
A good investment is not necessarily the same as good future profits; it depends on the entry point
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agreed standard settle. It is also unclear what consequences, if any, there will be for non-compliance with the transition plan requirements.” In the absence of agreed sustainability standards and with the muddle of ESG data available in the market, momentum investors are beholden to their managers’ analysis, research and stock-picking skills. According to Stephen Metcalf, Head of Sustainable Investing for RBC Wealth Management in the British Isles and Asia, momentum investors look at “similar metrics to those in traditional ESG strategies”. “These might be improving stockspecific factors such as governance remuneration, diversity, inclusion and, on the environmental side, how the company is managing its resources and what its carbon footprint is like.” But rather than looking at a company’s current ESG score, investors weigh up
Other clues indicating that a company is about to embark on a more concerted sustainable journey lie in the people it hires. Damien Fitzgerald, Head of Funds Guernsey at Zedra, highlights Guernsey Gas’s recent appointment of Alex Herschel as Managing Director from Guernsey Electricity, where she was Environmental Sustainability Manager. “It’s not just a company’s ESG policy that matters, it’s the individuals they are hiring as well. It is important to look for companies that demonstrate there is an ESG ethos and culture that runs from the board right to the shopfloor.” Given the emphasis on the future, rather than the now, for momentum strategies, a successful stock theoretically could be found in some of the sectors with the current highest carbon emissions and the worst employee rights records. Metcalf says: “There are companies that are completely changing their business model to go from dirty industry to clean industry. For example, a coal company that is looking at wind power or renewable energy would obviously be attractive.” In terms of accessing ESG momentum strategies, Metcalf says the current market cycle – which favours value (momentum) over growth (best in class) strategies – could lead to more fund launches. “In a world where energy – which is material to a lot of ESG portfolios – is performing well and high-quality growth stocks are being hurt by rate rises, ESG investments have to look for other ways of diversifying. “Momentum investing is one way to do that. I expect to see more asset managers launch momentum products and to expand the universe for investment.” n
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private wealth and impact Leonie Kelly, Director and Head of Ogier Global Sustainable Investment Consulting, and Catherine Moore, Partner in Ogier’s Private Wealth team in Guernsey, on gaining momentum around sustainability OUR PEOPLE AND our planet face serious
challenges from the climate crisis, natural disasters and rising inequality. No corner of Earth is immune. But we are far from powerless in the face of these global threats – this is a race we can win. Fortunately, there is a growing global momentum towards sustainability. We’ve seen this positive change supported at COP26 and by the UN Sustainable Development Goals, which help countries, companies, investors and philanthropists to align their activities towards sustainability and protecting the environment. The growing appetite for sustainable investments is also reflected in the data. According to the Global Sustainable Investment Alliance 2020 review, global assets under management in sustainable investments reached $35.3tn in 2020, a growth of 15% in two years. Leonie Kelly, Director and Head of Ogier Global’s Sustainable Investment Consulting, believes this can, in part, be attributed to ‘the great wealth transfer’. “Younger generations are expressing different risk, return and impact expectations towards management of assets,” she says. “Millennials are moving beyond using philanthropy alone and deploying capital across the spectrum of strategies, including impact investing. They increasingly recognise that one can do good using blended instruments and vehicles.”
PANDEMIC PLUS Another driving force has been the pandemic, says Ogier Partner Catherine Moore. “The Covid-19 pandemic has led many to consider their own mortality and their legacies, with many clients and their families contemplating their family’s genuine needs when weighed against the needs of society and the world we live in. Some may ask: ‘Why have wealth in a world we do not want to spend it in?’.” Engaged philanthropists, foundations and impact investors are vital players in
supporting the transition to a sustainable economy and are stepping up to the plate to create solutions. The potential impact of private capital has also, arguably, been magnified by the pandemic, which has placed added significant strain on public sector funding and resources.
MAKING A DIFFERENCE How high-net-worth families can most effectively make a difference is a common question facing private wealth advisers and wealth managers. And as clients increasingly look to align their investments with their values, and improve the application of private wealth in driving change, they are seeking the advice of ESG and sustainable investment professionals. “Clients and, increasingly, family offices are now seeing the need for professional and sophisticated advice surrounding the structuring of philanthropic and impactfocused ventures as they desire to correlate new wealth generation with positive impact,” says Moore. “It’s a trend reflected in the growth of impact investing and the key performance indicators for its assessment. However, structures with a focus on impact and ESG investing are often of a bespoke design with significant underlying value and it is fundamental that specialist advice is sought, including legal advice.” In a low-interest, low-yield world, says Kelly, this has accelerated a widening of the family office investment universe beyond traditional asset classes into such areas as private equity, venture capital, ESG investments and even crypto currency. As investments grow more intricate and high-net-worth families increasingly globalised, expertise is in greater demand. Trustees and foundations, which have played a critical role in pioneering a holistic impact approach, can also deliver environmental and social outcomes via several means, including traditional grantmaking, programme-related investments
and mission-related investments. The support needed has expanded rapidly over the years. It is now commonplace for advisers to assist in creating new private wealth structures primarily focused on ESG, impact or sustainable investment objectives (trusts, foundations, companies or partnerships). They are also providing advice on the evolving provisions, governance mechanisms, impact strategies, family constitutions and family office policies designed to further these objectives. “Whether through foundations, trusts or other structures, family offices or impact investing, it’s become vital for clients to seek the right support and legal advice to bring new dimensions to their philanthropic activities,” says Kelly. Ogier and its corporate administration business, Ogier Global, support clients by pairing legal and regulatory services with technical and practical advice on the implementation and delivery of sustainable investment and ESG mandates. With an experienced team of legal and technical experts, Ogier can help trustees, foundations, family offices and philanthropists seeking to incorporate ESG considerations into existing private wealth structures or establish private wealth structures with ESG, sustainable or impact investment objectives. n
FIND OUT MORE
Leonie Kelly, Director, Head of Ogier Global Sustainable Investment Consulting, is a respected voice in the industry with more than a decade of experience in sustainable finance. Catherine Moore is a Partner in Ogier’s Private Wealth team in Guernsey, advising on a range of private wealth structures, including trusts and foundations. She works closely with fiduciary service providers and high-net-worth individuals.
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Winning the war for talent It’s no longer uncommon to hear that the next generation of workers is not just interested in salary, but also a sense of purpose and a reputable employer. So how important are a firm’s ESG credentials to attracting and retaining the best talent? Words: Alexa Robertson
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likely to apply for and accept jobs with environmentally and socially responsible organisations. And perhaps surprisingly, nearly half of those questioned for the study would accept a lower salary to work for such companies. But is this growing sense of purpose being seen by organisations as part of their daily operations – and is it as important as we’re led to believe? “It’s always been there to a degree, but it’s much more at the forefront now,” says Jonathan Morton, Chief Operating Officer at Julius Baer in Guernsey. “It absolutely is something that’s much more prevalent in terms of what people are expecting of us and what our staff want. “People want to work for an organisation that effectively reflects the values they hold themselves. “When you look at the drivers behind someone wanting to work for an organisation, it’s not just about the pounds and pence they’re paid; it’s about how we operate as a business and that we
do it in a way that takes employees into consideration as well.” For Shelley Kendrick, Managing Director and Founder of recruitment consultancy Kendrick Rose, it’s clear that younger generations have different expectations of employers than their older counterparts – hollow words are no longer enough.
BEYOND LIP SERVICE “When we look at Millennials and Gen-Z – these so-called digital natives – they do want to work for a purpose and they do want to ensure that companies have a focus on ESG. I think we’re seeing less lip service in terms of what companies are actually doing. “One of my clients was talking to me recently about how much B Lab and B Corp are coming to the forefront in terms of transparency and sustainability. “In Jersey, we have the Jersey Good Business Charter, which is a way of demonstrating that an organisation is actively living those values [of building
THE CHALLENGES OF the past few years have transformed the way that many of us work. And that has upped the ante when it comes to attracting talent. No longer are candidates focused simply on a job title and a pay cheque. Instead, the next generation of workers is digging deeper into the values underpinning the organisations that may eventually employ them, from ESG-linked policies to employee welfare. Results from a 2021 study from IBM – enitled Covid-19 pandemic impacted 9 in 10 surveyed consumers’ views on sustainability – found that 71% of staff and employment-seekers reported environmentally sustainable companies as being a more attractive potential employer. In addition, more than twothirds of the respondents were more
People want to work for an organisation that effectively reflects the values they hold themselves
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Either you are an ethical employer, or you aren’t. And if you aren’t, it’s very difficult to mask that
an inclusive, sustainable, economically regenerative future]. It gives the message that, as a business, these firms understand governance and risk, and that the topic of ESG is being highly prioritised.” Simon Le Pelley, HR and Employee Experience Manager at Resolution IT, says the onus is on employers to rise to the challenge of higher expectations. “Whether we are advertising for a trainee entering the workplace for their first role or an experienced software developer, in a tight and competitive labour market applicants will generally have a choice to select the employer they believe is right for them,” he says. “This puts an emphasis on employers to look beyond their financial package to attract and retain talent, and they must look at how they can differentiate between themselves and their competitors. “Most – if not all – employers are now using ESG as a component of their broader employment package.”
THE AUTHENTICITY GAP Expectations around socially responsible credentials and a holistic approach to staff wellbeing are changing. But, in order to embed this into company culture and hold onto the best talent, organisations must put authenticity at the heart of their business strategy. “If what you’re doing as a business isn’t defined by purpose – and is not fully invested in by your leadership team but is instead defined by policy – I think you’re on a hiding to nothing regarding the authenticity gap,” says Chris Clark, CEO of Prosperity 24/7. “Either you are an ethical employer, or you aren’t. And if you aren’t, it’s very difficult to mask that. “As a company, we always talk about our purpose to our clients. We look after our clients, colleagues and community equally – and by looking after them all, we will prosper. “But we don’t just talk about it, either. It’s genuinely pervasive in everything we do. That works incredibly well with regards to attracting and retaining talent.”
VALUE REFRESH With standards and expectations around organisations’ ESG credentials ramping up, how can companies ensure they are
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evolving in this space and not being left behind? One of the most important aspects is creating a culture of conversation to encourage open dialogue with both employees and job seekers. “There are many ways to get feedback from staff, and surveying staff is one of the ways we do that,” says Morton. “Often the feedback we get from them focuses very much on areas around ESG and staff welfare, or other aspects of our community and how we can be proactive in terms of looking after ourselves, our families and the communities around us. “By engaging with staff in this way, not only do you get feedback, but employees are then also aware that you have a genuine interest in this. It comes down to the culture in your organisation – if staff
of employees and employment-seekers reported environmentally sustainable companies as being more attractive employers
can see that coming down from the top, that tone carries all the way through the organisation. People want to see things happen. Words are all very well, but they also like to see action.” Shelley Kendrick agrees that the ability to listen can go a long way in putting the right policies in place to build strong teams. “Employers need to listen, they need to communicate, they need to be transparent and they need to be honest,” she says. “They need to allow individuals to have a voice, and they also need to provide clear definition, clear targets and clear policies – and demonstrate that they are measuring their progress. “It’s not enough to just say: ‘Let’s plant a tree or go pick up some rubbish and post lots of pictures.’ This sort of commitment
has to run through the whole organisation so that it becomes part of the cultural world and staff can see the rationale for what it is a firm is doing.”
TANGIBLE IMPACT With ESG policy in place, it can be easy to think that the hard work is done. But organisations must also ensure that they have a robust review process or benchmarking strategy in place to continue to improve and evolve. “A couple of years ago, we signed up to a local accreditation for ESG, which goes right through from charitable volunteer work to utility usage,” says Morton. “We used our initial scoring on that to set out a benchmark. One of our strategic intentions is to improve year on year, but also within
those periods so that we have a tangible and recordable improvement to report on.” While the younger generation is pushing for a more transparent, sustainable and ethical corporate landscape, the risks of failing to prioritise ESG at board level can stretch way beyond the future talent pool. “A few years ago, companies would be doing this to raise awareness of their own brand,” says Kendrick. “These days, if you’re not doing these things, you run the risk of negative publicity and reputational damage. That can be very damaging to your business. We’re all savvy about this kind of stuff now.” When it comes to ESG, organisations need to put their money where their mouth is – or it could be more than a shortage of talent they are faced with. n
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ESG for start-ups While ESG credentials are now a part of everyday boardroom discussions in big business, the growing awareness of environmental, social and governance issues among investors and consumers means start-ups must also demonstrate their ESG compliance Words: Marco De Novellis
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WHY ESG? ESG is clearly growing in importance, but that interest isn’t limited to investors. One in three UK consumers have stopped buying products due to ethical or environmental concerns, according to a recent Deloitte survey. Meanwhile, in a recent survey of 2,000 UK-based workers, 65% said they were more likely to work for a company with a strong environmental policy. For Mansell, author of Simplify To Succeed, a guide to scaling and selling a business, start-ups that integrate ESG into their business models gain a competitive advantage. “It’s not just about making money any more; people want to work for companies with purpose. And if you’re seen to be more socially and environmentally aware, consumers will also take note and buy from you.”
Norma O’Sullivan, MD of TMGA Wealth Management, a Jersey-based business launched last year, believes that start-ups can better attract and retain talent and build brand reputation by adopting ESG principles. “Those principles lay the foundations for building a healthy internal culture, positive external image and promoting good and fair practices for all stakeholders – employees, clients, regulators, suppliers and the wider community,” she says. “If you have healthy relationships with your stakeholders, it allows for a strong, resilient business.”
ESG IN PRACTICE O’Sullivan and her colleagues prioritised the G of ESG when building TMGA. A governance director was among the company’s first recruits, responsible for implementing an ESG-friendly operating framework and ensuring the firm’s values, culture and strategy align. “Environmental and social factors get more attention, but we see the G as key to having an authentic ESG strategy,” she says. Only with strong governance, O’Sullivan argues, can you successfully embed the E and S criteria into a business. But choosing what to focus on remains a challenge for start-ups, particularly due to the lack of a global standardised framework for ESG. There is no ESG checklist that start-ups can tick off. Instead, they refer to ESG frameworks such as the UN Sustainable Development Goals or the Global Reporting Initiative, addressing ESG factors ranging from energy efficiency to diversity. “ESG is the area of nothing defined,” says Ian Horswell, Global Head of Business
Development, Funds, at Suntera Global, which obtained its fund administration licence in Jersey last year. There are more than 600 ESG ratings and rankings in use today, but ratings by prominent agencies are only aligned in about six out of 10 cases, according to research conducted at MIT Sloan School of Management. EY has highlighted the lack of consistent and comparable data as the biggest ESG investing challenge for asset managers. Investors may have a checklist of ESG factors they scrutinise, Horswell says, but every investment team prioritises different factors based on the companies in which they invest. “If you’re looking at private equity in South American countries, they may be concerned with deforestation or employment conditions. If you’ve got a real estate project in London, there might be carbon offset targets. “A construction company might ask: where are they getting their cement and sand from? Are they energy-efficient? Do they pay the living wage?” Start-up managers don’t have to cover every facet of ESG, Horswell explains. Instead, they should understand what the core focus of the business is and where they can best integrate ESG.
STRATEGIES FOR SUCCESS There are organisations that can help. Suntera Global, backed by ESG-centric private equity firm Palatine, provides governance services to start-up firms. LNJ, a social value service launched in Jersey this year, takes care of the S in ESG, helping companies implement and measure the impact of social initiatives. LNJ has its
ESG factors While there’s no definitive list of ESG criteria, start-ups can track and measure various ESG factors considered by investors: Environmental
Air and water pollution Biodiversity Carbon emissions Deforestation Energy efficiency Waste management Water usage
Customer satisfaction Data protection and privacy Gender and diversity Employee engagement Community relations Human rights Labour standards
Board composition Audit committee structure Bribery and corruption Executive compensation Lobbying Political contributions Whistleblower schemes
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“ALMOST EVERY INVESTOR is looking at ESG,” says Garry Mansell, a veteran angel investor and entrepreneur who builds and sells start-up businesses. Investment in ESG-dedicated funds already exceeds $2.7tn globally. And, by 2025, ESG assets are expected to reach $53tn – a third of total assets under management. Investment firms, Mansell explains, are now assessing start-ups based on their environmental, social and governance (ESG) criteria – alongside their business plans and growth potential – to determine whether to make an investment. Start-ups may lack the resources of established firms, but as investors look to match profit with purpose, it’s never been more important for start-ups to showcase their ESG credentials.
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Putting the ‘social’ into start-ups LNJ is a new Channel Islands-based business offering a social value service to companies that don’t have the time or resources to manage it themselves. It helps organisations to integrate the S of ESG by connecting them with charities and creating and managing social value initiatives that have a measurable impact. Chief Executive Jensen Nixon and Chief Operating Officer Laura Burton explain more.
HOW DID THE IDEA FOR THE BUSINESS COME ABOUT? With a rising consensus that the social role for organisations goes beyond CSR, we saw a gap in the market to provide a service for organisations that were struggling to get effective ESG programmes in place. We thought we could work with businesses and individuals to deliver this service, taking them from inception to completion and reporting all the way through.
regular meals would improve the person’s health and result in fewer visits to the doctor.
WHAT IS YOUR ADVICE FOR START-UPS LOOKING TO INTEGRATE ESG? Start-ups should seek to demonstrate commitments to ESG from a very early stage. First, consider your products and services and if they will have a negative environmental or social impact. Then identify how you will offset the impact. A key component of ESG is being able to evidence and measure the impact. Start-ups should have the appropriate reporting in place, so that impact can be easily referenced.
HOW DOES IT WORK IN PRACTICE? We’ve partnered with local charities and created initiative programmes that organisations and individuals can invest in, providing periodic updates to demonstrate the wider added value of what they’re doing. Through our Social Return on Investment (SROI) model, we use a principle-based approach to show the wider definition of value. For example, if someone donates money to a luncheon club scheme, we can measure the SROI to demonstrate that this donation is making a real difference to the community. This measurement is made up of several factors. One example could be offering mild therapeutic exercise at the luncheon club to the elderly, to help stop them having accidents at home, which would mean fewer hospital admissions and alleviate the cost of staying overnight in hospital. Another example might be that
By embedding ESG practices, starting small but levelling up as they grow, start-ups can weave ESG into all aspects of the business
own methodology to assess social impact and specialists go out into the community to measure impact on the ground. For O’Sullivan, companies that successfully implement ESG do so from the outset. Here, start-ups have an advantage over established firms, she says. By embedding ESG practices, starting small but levelling up as they grow, start-ups can weave ESG into all aspects of the business. Boosting your ESG credentials doesn’t have to be expensive either. Start-ups can get quick wins by selecting office space with strong ESG criteria. They can create environmental and social policies, ensure fair wages and diverse boards, and use glass instead of plastic, for example. Start-ups can offer their expertise to support local charities or tap into backto-work schemes. They can also target investors with ESG credentials to bring them into the business. Applying for B Corp Certification is another good way for start-ups to prove their ESG credentials, as Mansell explains. “People like me know how hard it can be. I don’t think any investor expects a start-up to have flawless ESG credentials,”
he says. “But if you have a path to getting where you need to be, and you can demonstrate it, then investors will come back to you.” To achieve net zero by 2050, the UK government has set in law the world’s most ambitious climate change target – to cut greenhouse gas emissions by 78% by 2035 compared with the level in 1990. Major central government procurements must now explicitly evaluate social value rather than just consider it, and new sustainability disclosure requirements will eventually require businesses to disclose their environmental impact. Meanwhile, to combat greenwashing, the UK’s Competition & Markets Authority has published a Green Claims Code and is undertaking a full review of misleading ESG claims by businesses in 2022. Most important, with responsible business practices now high on the agenda for governments, regulators, consumers and investors, start-ups must be as transparent and honest as they promote their ESG credentials. As Horswell concludes: “It’s very easy to turn around and say ‘We’re ESG focused’. Well, now you’ve got to prove it.” n
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FOR US, IT’S PERSONAL
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Knowledge Brain food for the busy business professional
The Knowledge is compiled by Alexander Garrett Testing testing
points WFH and lonely
Two thirds of British workers are finding it hard to make work friends while working from home, and employers should do more to encourage social connection between their workers. That’s the conclusion of a survey conducted by workplace culture specialist OC Tanner as part of its Global Culture Report. Some 71% of employees said they found it easier to make personal connections with people from other generations when in the office, while a similar number said it was easiest to befriend people of different cultures in the office. According to the CIPD, regular team catch-ups can help knit remote teams together.
Parents are being encouraged to test their children’s nail clippings for drugs and alcohol after a Cheshirebased company launched the first kit designed for this purpose. Alphabiolabs says the kit can be used on either toenail or fingernail clippings, and can provide an overview of up to 12 months of drug or alcohol abuse. Three types of tests are available: alcohol test (£99), drug test (£149) or combined drug and alcohol test (£199), with secure, password-protected results emailed within seven working days. In a survey carried out by the company, 34% of parents said they had concerns about their children being involved in drug or alcohol abuse.
Mosquitoes are more likely to bite people wearing red, researchers at the University of Washington say. Scientists found that mosquitoes – one species in particular – are attracted toward specific colours, including red, orange, black and cyan, while they ignore other colours, such as green, purple, blue and white. This new trigger is fourth in line after three other cues that cause some people to attract mosquitoes more than others: your breath, sweat and temperature of your skin. Bare skin of any colour that includes significant red pigment will also act as a magnet, so the best way to keep the insects at bay is to cover as much skin as possible with the colours that don’t attract.
Scaffolders and roofers are the most wasteful tradespeople when it comes to recycling their waste, according to a study by IronmongeryDirect. Only 53% of scaffolders and 50% of roofers “always or mostly” recycle their work waste, according to the survey, while plumbers come out on top, with 73% clearing up in a responsible way. The two groups at the bottom of the table both scored poorly on “being knowledgeable about waste regulations”. Younger tradespeople appear to be less responsible than their elder counterparts, with 31% of Millennials (aged 25 to 34) saying they send their waste straight to the tip, compared with just 12% of those aged 45 and over.
An international survey by YouGov has found the 11 practices that Italians deem to be the greatest ‘crimes’ against their national cuisine, which has previously been found to be the most popular in the world. Top of the list was putting ketchup on pasta, which scored a negative rating of -82 in Italy, but was deemed quite acceptable in many other countries. Other practices decried by the Italians include cooking pasta in cold water, having pineapple on pizza, and serving pasta as a side-dish. Young Italians showed themselves to be less conventional, voting in favour of having cappuccino after a meal or eating garlic bread as an accompaniment.
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New in… BOOKS
food for thought
Regenesis: Feeding the World Without Devouring the Planet by George Monbiot (Penguin, £20, hardback) Farming is one of the world’s greatest causes of environmental destruction, argues George Monbiot, killing wildlife, poisoning rivers and oceans and still leaving millions hungry. The Guardian columnist and environmental campaigner sets out his alternative vision for how our entire food system could be transformed by looking at how we farm in a completely different way. That involves drawing on advances in soil ecology; breeding perennial grains; growing protein and fat in labs; and a variety of new pioneering methods. Monbiot argues that the tiniest life forms could help us make peace with the planet, restore its living systems, and replace the age of extinction with an age of regenesis.
Diddly Squat: A Year on the Farm by Jeremy Clarkson, (Penguin, £8.99, paperback) Now out in paperback, this is a somewhat different take on farming from the former Top Gear presenter based on his hit TV series Clarkson’s Farm. Look forward to chaos as the controversial writer decides to run his own farm in the Cotswolds and quickly finds out that it’s a challenge like no other. He faces up to red tape, apocalyptic weather, animals that simply won’t do what they’re told and a distinctly sceptical local community as he attempts to make his acres profitable – and then Covid-19 comes along. This book tells the story, with guest appearances from Kaleb the Tractor Driver, Cheerful Charlie, Ellen the Shepherd and Gerald, his Head of Security and Dry Stone Waller, among others.
here’s to hybrid
Redesigning Work: How to Transform Your Organisation and Make Hybrid Work for Everyone by Lynda Gratton (Penguin Business, £14.99, paperback) This book has been written for those who want to know how work is going to be different in the wake of the Covid-19 pandemic. Gratton, a leading London Business School thinker, has set down her thoughts in the form of a four-step framework that involves understanding the challenges your business is facing, reimagining creative new approaches and processes, modelling and testing these in your organisation, and acting on the basis of contemporary, data-led feedback. It’s designed for anyone, whether in a small team or a multinational, who wants to embrace change and make hybrid working work.
Clubland: How the Working Men’s Club Shaped Britain by Pete Brown (HarperNorth, £16.99, hardback) In the early 1860s, a teetotal social reformer called the Reverend Henry Solly set about forming the first working men’s clubs in a drive to provide an enlightened social outlet for men who too often spent their lives ground down in factories and heavy labour. The original idea was they would be alcohol-free, but the clubs eventually became a cornerstone of British life with more than seven million members, and pints of warm bitter among their key attractions. This book charts the history the working men’s clubs, which evolved into boozy, sometimes bigoted entertainment venues where stars such as Shirley Bassey, Louis Armstrong and the Bee Gees could be seen, and where many of Britain’s best-known comedians earned their stripes.
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In numbers: oil RESOURCES
Global oil consumption per day, in barrels Source: Worldometers
about money Wells Fargo Wealth & Investment Management’s podcast About Money focuses on productive conversations to empower financial decision-making. Hosted by Michael Liersch, Head of Advice and Planning for Wells Fargo’s Wealth and Investment Management arm, its first season looks at tackling money taboos. The 10-episode series is on Spotify. open.spotify.com/show/7j6Cma9Yhm1t7dclyqoF0Z
Years of identified oil reserves left in the ground Source: Worldometers
LinkedIn Podcast Network LinkedIn’s new network will feature in-house shows from the LinkedIn News team and industry figures, geared towards a professional audience. It will cover understanding technology, managing mental health and recruitment issues. Reid Hoffman, co-founder of the social media site, will co-host a podcast about personal entrepreneurship, The Start-up of You. members.linkedin.com/creators/linkedin-podcast-network
Record price in US dollars of crude oil, reached in July 2008 Source: Trading Economics
goboat Business visitors to Birmingham can try a new electric boat service, as GoBoat sets sail around the city’s canal network, its first site out of London. Starting from 8 April, groups of up to eight will be able to charter the boats, which will embark from Brindleyplace. Guests can pack up a picnic or grab a bottle of prosecco to travel for one, two or three hours at 4mph. Last year, when the service was trialled in London, it attracted more than 100,000 visitors. goboat.co.uk
23.22 % rise in the price of crude oil seven days after Russia invaded Ukraine on 24 February Source: Trading Economics
C-level Innovation Club A new networking and innovation platform for C-Suite and IT leaders of mid-to-large sized enterprises has been launched by the CEO and founder of TDM Group. The platform, hosted on LinkedIn, will be used to share advice and insight on how the mid-market can navigate today’s greatest challenges and use technology to scale. The platform is open to companies with 100-1,000 staff or £10m+ turnover, and during all debates and discussions, Chatham House Rules will apply. www.linkedin.com/groups/7407369/
Russia’s % share of global oil production in 2020, making it the world’s fourth biggest producer Source: US Energy Information Administration
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... Eradicate your gender pay gap Carry out an audit Compare how men and women are paid for doing similar work. The audit should be a joint endeavour between management and staff, says trade union Unison, and it sets out to establish comparative pay levels and how they are decided – for example, based on education, experience, responsibilities and performance. An audit should be carried out annually.
Get into the weeds “In addition to the mandatory gender pay gap report required by law, businesses should consider publishing an accompanying narrative report that offers a detailed analysis of employee salaries, including a breakdown of the roles, hours and promotion statistics for each sex,” says Ian Dawson, a Partner at law firm Knights. “In preparing a report of this kind, businesses can identify their shortcomings and provide a time-bound and target-driven action plan to close any identifiable gap.”
Correct underlying disparities
“At the heart of the problem is an assumption that senior jobs naturally require long hours and constant availability”
Unequal pay for the same job is one small part of the gender pay gap. “The equal pay issue is one of discrimination: paying men and women different amounts for doing the same job,” says flexible working consultancy Timewise. In some cases, it is a question of comparing pay for jobs that are heavily preferred by one gender but are similar in profile of experience and skills.
Eliminate hiring bias Give your recruiters unconscious bias training and analyse job descriptions
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to eliminate language that’s likely to turn off potential female applicants. You should also design senior roles that work for everyone. “There are more senior men than women in the workplace as a whole, and as senior people tend to be paid more than junior people, this has a negative effect on the gender pay gap,” says Timewise. “At the heart of the problem is an assumption that senior jobs naturally require long hours and constant availability, and so cannot be done flexibly or part-time.”
Publish clear salary ranges Studies show that women are less likely to negotiate their pay, partly because they are put off if they are not sure what a reasonable offer is, says the UK Government Equalities Office. “Employers should clearly communicate the salary range on offer for a role in order to encourage women to negotiate their salary. This helps the applicant know what they can reasonably expect.”
Look beyond wages Examine bonuses, share options and other incentives as well as just the basic pay package.
Get fathers to take time off While shared parental leave has been around in the UK since 2015 many new fathers find employers are not that supportive in terms of how much time they take off to
Business leaders on making it to the top
Getting ahead Alexia McClure, CEO, Jersey Business You studied music – did you ever consider a career in it? Music is a big part of my life. It’s so versatile – there is always something to listen to that suits how I’m feeling and I love the vibe of a live music gig. Although I studied it and was quite proficient when I was at university, I knew I would never be good enough to be a professional performer so it was never a serious consideration.
What did you learn from starting an event management firm? I quickly learnt the two most important lessons in business: you need clients to generate income (and that means delivering a great service); and you need a positive cashflow. Running my own business taught me to be clear and up front about pricing and to chase debtors quickly.
What qualities do you need to succeed in business support? It’s about building a trusting, respectful relationship so that each party can be open and honest, sharing ideas to support the business leader to help them achieve their goals. Experience of being in business, grabbing opportunities and overcoming hurdles is a definite advantage, but the essence of providing good support is to help others achieve their goals. care for a new baby, says Simon Lythgoe of employment consultancy Volt. “Incentivising the men in your business to take shared parental leave means their partners can continue to work, which goes a long way towards closing the gender pay gap.”
Be transparent Don’t prohibit employees from discussing their pay and be open about how compensation is decided. That means being open about processes, policies and criteria used for decisionmaking, says the UK Government Equalities Office. “Managers must understand that their decisions need to be objective and evidence-based because those decisions can be reviewed by others.”
Where do you find the greatest satisfaction in your role? I love the variety. I am endlessly curious about the experience of being in business. I’m constantly talking with others and learning from them so I can share knowledge, build confidence and keep myself and others moving forward. Never a dull day!
Should business always have a purpose beyond profit? Absolutely. I believe businesses exist to build stakeholder value and this approach is becoming more mainstream. The current focus on environmental impact is urgently needed, but businesses need to take their role as a ‘good employer’ much more seriously. It’s no longer acceptable to do ‘the least you can get away with’ for your people – proactively building culture, purpose, inclusion, equitable pay and reward must be led from the top.
What one piece of advice would you offer to someone starting a new business in Jersey? Understand your motivations and what you really want to get out of running your business. Research, plan, understand what you’re good at, bring in or outsource to others the things you aren’t good at. Jersey is a small market, so think of exporting. But, most importantly, make sure you understand your finances.
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fter a decade of climbing the league table, last year Amy Edmondson, and it’s not easy to achieve. Leaders have to frame Edmondson was named the number one management what they want from workers precisely, encourage people to see thinker in the world by Thinkers50, the so-called Oscars of failure as learning, and always be open to ideas. the management guru business. The consequences of not providing psychological safety in Amy who? She may not be a household name in the business settings such as hospitals, for example, can be particularly serious. world like Tom Peters or Peter Drucker, but Edmondson is Edmondson is Novartis Professor of Leadership at Harvard responsible for arguably one of the most important milestones Business School, where her work on psychological safety in allowing people to work effectively in teams in the last has led to extensive academic research in management, 20 years. Her idea – ‘psychological safety’ – is about healthcare and education over the past 15 years. “I have been creating an environment in the workplace where studying leadership Her other specialism is teamwork, where her ideas people feel confident to speak up, ask for help, admit were best set out in the 2012 book Teaming: How my whole life. I’ve a mistake or even criticise what they are doing, where Organizations Learn, Innovate and Compete in the never quite seen the Knowledge Economy. they won’t be punished or humiliated for doing so. Her thinking in this area has been nurtured over It’s fair to say the Kremlin under Vladimir Putin likes of Volodymyr many years and was fully espoused in her 2018 book would be the very antithesis of psychological safety, Zelensky” The Fearless Organisation: Creating Psychological Safety and perhaps there’s an even stronger link in the recent in the Workplace for Learning, Innovation, and Growth. horrific events in Ukraine. On LinkedIn, Edmondson said It argues that creating a fear-free culture is essential for of Ukrainian leader Volodymyr Zelensky: “I am transfixed by the organisations to thrive in today’s knowledge economy, in example of President Zelensky. He is plainspoken, quietly forceful, which new ideas and critical thought are essential to success. and unstinting with the truth. I have been studying leadership and Psychological safety is definitely not about being nice, says fearlessness my whole life. I’ve never quite seen the likes of this.”
Coined in 2014, it’s only now that everyone has started talking about Web3, the name for the next version of the world wide web. And it’s not always complimentary. Some see it as a myth, others as a buzzword, others as an outright scam. Web3 uses blockchain as its infrastructure and its biggest acolytes are crypto currency supporters. The concept was cooked up by Gavin Wood, co-founder of Ethereum, who called it a “decentralised online ecosystem based on blockchain”. The idea is you move away from accessing the web via mega platforms such as Google to a world where everything is distributed over a much larger number of access points, with the blockchain providing a secure, incorruptible infrastructure for storing information and making payments. The scepticism owes much to the expectation that NFTs – nonfungible tokens – will figure largely in this brave new world, and these are a massive con-trick to get people to pay huge sums of money for some binary code. Many people believe Web3 will never happen. Some are instead putting their money on Web3.0, the socalled ‘semantic web’ that would be the next iteration of the current Web2.0 and is based on the ideas of Sir Tim Berners-Lee.
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The Passion Economy A way to monetise your skills at scale and then enjoy yourself
Solopreneurs Apple’s take on oneman-bands who build a business
ALSO NEW IN THE WORLD OF
Top tech Deepfakes CAN YOU BE SURE WHAT YOU’RE SEEING ON THE NEWS IS TRUE? SOPHISTICATED BUT FAKE BROADCASTS AND COMMUNICATIONS ARE HAVING A HUGE IMPACT ON WORLD EVENTS SUCH AS THE WAR IN UKRAINE – SO BE ON YOUR GUARD
The war in Ukraine has brought deepfake technology into the spotlight once more. In a conflict where two very different versions of events have been presented inside and outside Russia, the use of faked videos has enormous potential to provide false accounts of what is happening and either bolster or undermine morale on both sides. In the third week of the conflict, a deepfake video appeared to show President Zelensky of Ukraine announcing a surrender and telling citizens to put down their arms. It was immediately denounced in Ukraine and beyond – not just as a fraud, but not even a very good one. His head appeared too large and was more pixelated than his body, according to some appraisals. The Ukrainian Centre for Strategic Communications had already given warning that the Russian Government would use deepfakes to persuade the people to surrender. Both YouTube and Twitter acted quickly to remove the offending video. There’s also a deepfake of Vladimir Putin in circulation; it appears to show the Russian President announcing that peace has been reached and the Crimea restored to Ukrainian sovereignty. This one uses footage from the President of Russia’s official website, according to Reuters, and has been edited with a new script, but with flawed lipsync. So far, then, nothing too convincing to worry about. But deepfake is a technology that has been worrying many around the world from consumer champions to political leaders and tech companies. The term itself was coined in 2017, when an anonymous Reddit user calling himself “Deepfakes” manipulated Google’s deeplearning technology to create fake porn videos which had been doctored with a technique
known as face-swapping. In the videos, real faces were replaced with celebrity faces. A number of AI techniques can be used to replace one face with another in videos; they rely upon capturing specific expressions, finding similarities between faces and identifying patterns in facial characteristics. According to security software firm Norton, deepfakes pose concerns in a number of areas. They can be used to engineer scams and hoaxes; to create celebrity pornography; to manipulate elections; to create disinformation – such as fake news; and to perpetrate identify theft and financial fraud. In one notorious example, in Gabon, a deepfake video led to an attempted military coup in the East African nation. The big issue, then, is how to identify deepfakes. Many can be spotted by giveaway signs such as lack of blinking, robotic-sounding voices and unnatural lighting or skin colours. But the most sophisticated deepfakes are much harder to detect, and that’s where technology researchers at the University of Southern California and elsewhere are turning back to the AI that creates these videos – using machine learning to break down facial biometrics and the facial quirks that are revealed when someone speaks. They claim to be able to detect deepfakes successfully around 95% of the time. Is there a useful, commercial role for the technology? Well there could be. In one example, an Israeli genealogy company MyHeritage has created a tool called Deep Nostalgia, that allows you to take your old family photographs and animate them, bringing your long-dead relatives back to life in an eerie manner. What is clear is that technologists will need to identify fail-safe ways to identify and clearly label deepfake videos, if they are not to be used to devastating effect in wars and political elections in the years ahead.
HOT NIGHT WATCH The Fitbit Luxe is a super-light (28g) fitness tracker that is ideal for monitoring your sleep and all your other health essentials. £109 www.fitbit. com/global/uk/ products/trackers/ luxe
CLEAN SWEEP The iRobot Roomba i7+ is a robotic vacuum cleaner that learns to map your home and can even be told where to go next by voice. £799.99 www.irobot. co.uk/en_GB/ irobot-roomba-i7/ I755840.html
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KPMG in the Crown Dependencies is a leading professional firm that delivers audit, tax and advisory services. Operating across the islands of Guernsey, Jersey and the Isle of Man, it is a standalone, locally led partnership with over 450 members of staff. The combined practice forms a core part of the KPMG Islands Group, made up of International Financial Centres and Overseas Territories spanning a sub-region which extends from Malta to the Caribbean. This grouping works closely with other KPMG practices in major global financial centres such as London and New York, ensuring that clients can benefit from an optimal blend of local and global expertise from KPMG’s network. KPMG is a global organisation of independent professional services firms providing Audit, Tax and Advisory services. It operates in 146 countries and territories with over 220,000 people working in member firms around the world. Find out more at https://home.kpmg/cds Contact details: Neale Jehan Senior Partner KPMG in the Crown Dependencies E: email@example.com T: +44 (0) 1481 721000
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ESG: Europe leads the charge Asset size of sustainable funds worldwide by region
Asset value ($bn)
Asia (excl. Japan)
Australia and New Zealand
There has been much talk of the growth of sustainable funds in recent years, and it’s clear from Statista’s recent summary of assets of sustainable funds worldwide in 2021, by region, that Europe is leading the way. European sustainable funds held more than $3tn of sustainable assets as of September 2021 – more than 10 times the value of assets of sustainable funds in the US. Also of note, Asia (excluding Japan) was the third largest region for assets of sustainable funds, reaching a total value of $50bn as of September 2021. Source: https://www.statista.com/statistics/1296334/sustainable-funds-asset-size-by-region/
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