The Aspida Group offers a broad range of practical, proactive and forward-thinking advice as well as business support services. The Group is able to assist in matters of fund and wealth management administration, fund structuring, drafting of documentation and agreements, fund and company listings, liaison with regulators, as well as bespoke services including project management, information delivery, business outsourcing, registration services, compliance support, para-legal functions, anti-money laundering and other related areas of activity.
The Group is dedicated to working with clients to provide individual, business-oriented solutions to their problems. Aspida’s independent status and creative approach enable the company to rapidly adapt to business change.
Richard Bray joined Aspida in 2007 and has been working in Fund Administration since 1985, including 13 years with a major Swiss financial institution. Richard has worked on a wide variety of funds, from relatively simple long-only bond and equity funds, through to complex structured products and including private equity, property, commodity, derivative, and hedge funds of various strategies.
Principally from an operational background, Richard has also worked closely with clients with the structuring of their products and following on through to the successful set-up and running of the fund. Richard has in-depth knowledge of all aspects of fund operations across a wide variety of fund types and strategies.
In light of Europe’s new Anti-Greenwashing rules coming into effect, can you tell us a little bit about the impact greenwashing has on the fund management industry?
Greenwashing, which is falsely reporting, or dressing up something to be ‘green’ when it is not really so, is a pernicious threat to anyone looking to place their money in investments that will help to benefit the environment.
Imagine that you invested in a fund that claimed to have green credentials, but then you later found out that the fund invested in items such as oil pipelines (oil being less polluting than coal and transporting it by pipelines is far better and less risky to the environment than tankers), open-cast uranium mining (nuclear power stations don’t emit greenhouse gasses), and rail infrastructure that was primarily used for transporting logs felled from rain forests (because rail is less polluting than road). I think you would quite rightly be rather sceptical of the green credentials of that fund.
The threat of scenarios such as the rather extreme example above could give investors doubts about putting their money into such products. This would then slow down the growth of the green investment fund sector unless some guarantees can be made of the veracity of the environmental claims made in fund literature.
The need to avoid greenwashing and provide a decent return to investors then throws challenges to the fund manager. How can they demonstrate that their investments are truly environmentally friendly? What can they do to engender the trust of the investor community and prove that the trust is well-founded?
The answer to these questions tends to be found within sets of defined rules on investing and reporting.
Although these rules place more work on investment managers and fund administrators, we would expect to see more funds being set up to comply, more money flowing into the sector, more money being invested in environmentally beneficent projects and thus a positive impact on the environment.
What will be the impact of these new rules in your opinion?
Europe’s anti-greenwashing rules are one in a developing line of regulations and guidelines that set out rules for green investing. For instance, we already have The United Nations Principles for Responsible Investing, the Guernsey Green Fund Rules, and the International Capital Market Association’s Green Bond Principles. So now Europe brings us their Sustainable Finance Disclosure Regulation (“SFDR”) which sits with their Low Carbon Benchmarks Regulation and their Taxonomy Regulation as part of the EU’s commitment to enabling the financing of sustainable growth.
As you may guess from the name, the SFDR focuses on imposing mandatory reporting requirements on Alternative Investment Fund Manager and on UCIT Managers where their products are sold into the European Economic Area. It also demands that investment managers consider the principal adverse impacts of their investment activity. The more claims you make about the product targeting environmentally friendly investments, the more you have to do to back up these claims.
Meanwhile, the Taxonomy Regulation sets out which economic activities can be deemed to be ‘sustainable’, with one of the many defining criteria being that ‘an economic activity should not qualify as environmentally sustainable if it causes more harm to the environment than the benefits it brings.’
So what Europe has done is to provide definitions of environmentally beneficial investments and define reporting standards to follow if you make green investment claims. This should help to give assurance to potential investors that their money will be used as claimed; for example, the oil vs coal example I gave above would, one hopes, fail the Taxonomy test
Although these rules place more work on investment managers and fund administrators, we would expect to see more funds being set up to comply, more money flowing into the sector, more money being invested in environmentally beneficent projects and thus a positive impact on the environment.
Which is undoubtedly a good thing.
What has been the impact of the COVID-19 pandemic on the fund sector in Guernsey?
The fund sector in Guernsey has proved itself to be resilient during the pandemic. We were forced to adapt to this new environment, this ‘new normal’ but adapt we did. Firms successfully embraced working from home. Virtual meetings became the norm whether between team members, Boards, or potential client meetings.
We were of course able to come out of lockdown and return to the old normal (without travel abroad) sooner than most, but we learned from the experience.
So where are we now, as the world is slowly but surely moving to ‘living with COVID’? Discussions with various people within the fund sector reveal a pretty universal theme of ‘very busy dealing with the new business’. This reflects, I think, on the resilience of the fund sector.
Being able to continue operating throughout the pandemic; and being one of the few jurisdictions that were operating business as usual, allowed us to demonstrate to the finance world the benefits of working with us. Their business was, and is, in good hands.
We do still have some challenges; for example, being able to demonstrate proper substance when people cannot readily come to the island on day trips for board meetings springs to mind. But the fund sector is up to these challenges, and I find that the sector is one that throws up solutions to problems rather than becoming mired in them.
How is Brexit affecting the sector on the island?
Until the UK finalises its financial services agreements with the EU, we will not know the full extent of the effect that Brexit has had on the Guernsey Fund Sector. There were some immediate effects: Guernsey was to be granted third-country passporting rights for marketing funds into Europe, but with Brexit, that process was put on hold.
The Fund Sector has seen the movement of business both ways as a result of Brexit, but our resilience and ability to adapt and move quickly should put us in good stead as matters develop.
What do you think the future holds for funds in Guernsey?
My crystal ball is rather murky on this matter. But our fund sector has demonstrated its strength and resilience. It is able to lead the way in innovations such as the Guernsey Green Fund, it is able to react quickly as financial markets evolve, and it is able to work with Governments and Regulators across the world. While we have strong regulators, and skilled and experienced personnel to support the fund sector, I believe we are well placed to meet whatever challenges are thrown at us.
How can investors benefit from the information and guidance that companies like Ethical Screening provide?
Investors have become increasingly interested in the non-financial performance of the companies they invest in and this trend is growing at a rapid rate.
Research companies specialising in responsible investment are critical due to the range and complexity of the issues a client may want to avoid or endorse. Understanding an organisation’s approach to environmental management, social issues such as human rights or governance, taxation and corruption can create an overwhelming array of subjects that need to be understood. Research companies are able to deliver accurate information on these issues to aid decision making. Our methodology is used to distill and analyse the wide range of non-financial information that is available and cut through any greenwashing. We have the ability to summarise this information effectively and fully arm investment managers/IFAs to have these complex conversations.
Responsible investment is no longer an area that can be ignored. It is critical investors find a method or provider they can trust.
Why should more investors consider working with Ethical Screening?
Ethical Screening is a well-established research business that has been enabling responsible investment for the past 23 years.
Our information is relevant, detailed and accurate - we provide the information you need to know before you invest in a company, both the positive and the negative. The methodology is vital. Ours is supported by detailed key indicators for each sector which focus the research and ensure companies are rated consistently. Our SDG research is made more robust than many (particularly company's own reporting), by focusing only on material issues linked to the underlying targets to the goals. Our data is complex but we are able to translate this into clear narrative that makes sense to our clients.
We are accessible. Ethical Screening provides tools and reports, via our Ethical Screening Portal (ESP) to enable investment managers and IFAs to engage with their clients on relevant issues. This empowers the investment manager or IFA to be able to confidently discuss issues with their clients, and communicate exactly how their requirements are being implemented.
We employ passionate, knowledgeable people. By working with Ethical Screening you are able to phone us to discuss points in detail with our experts. We often have conversations with clients acknowledging the subjectivity of some of the subject matter - ethical issues can have many grey areas. Similarly, the Sustainable Development Goals were not written for companies, so there is much interpretation needed - we are happy to engage with the users of the data to discuss such matters, which increases accuracy and understanding.
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change.
Have you seen an increase in the number of clients wishing to work with you with the rise of responsible investment from the past few years? What’s the impact this has had on the company?
There has been a steady rise in interest and regulation in this area over recent years, which has fueled an increase in the number of clients. The impact on the company is we need to provide much broader research, and on more companies. Long gone are the days of screening to only negative issues. Our database has over 2,500 companies across ethical, ESG and (positive) impact analysis. The principal challenge for us currently is keeping up with regulatory developments and the wealth of data that is being produced.
How do you deal with ‘greenwashing’?
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change. This is strongly related to problems in terminology, for example, the interchangeable nature of the terms responsible, ESG and sustainable. From a client perspective, it is therefore important to be completely clear on what is being discussed or proposed. Ask the client what they understand by 'sustainable' - are they comfortable with the best-managed companies in a particular sector, or do they want to exclude all companies with that activity. An oil & gas company with a very high ESG score is not likely to appeal to an investor who is looking for truly sustainable investments.
From a research perspective, we look at the information the company provides (typically more positive) and then a wide range of other sources to get the other side of the story (typically more negative). Putting these two together provides a full picture of activities. Our research team are very experienced and with this experience comes the ability to see through 'non-robust' claims - for example, if there is a target is there any evidence or reported progress towards the target? If the company self-reports it meets SDG 5, Gender Equality, is this reflected in its gender pay ratios?
What do you hope to achieve in the future with Ethical Screening?
In March this year, we refreshed and re-launched our core product, the Ethical Screening Portal (ESP). The portal is an online system that allows investment managers and IFAs to screen companies and funds based on clients ethical and sustainability criteria. The portal really is a game-changer in regards to its selection criteria and provision easily accessible reports for clients – I would like to see the Ethical Screening Portal becoming an essential part of the investment manager or IFA toolkit.
We have been working a lot on internal processes and strategy for the company, which has been more behind the scenes. 2021 has been a great year for us so far, we are lucky that the pandemic has not slowed us down and we hope to continue to move the company forwards.
Responsible Investment is so dynamic at the moment, it is a very exciting place to be. Our core objective will remain the same - to provide accurate, useful information and useable tools that enable responsible investment, and thereby do our part in turning the financial system to a more sustainable future.
For more information, please visit www.ethicalscreening.com or email enquiries@ethicalscreening.com.
Members of trade bodies, academia, and NGOs will make up the task force, known as the Green Technical Advisory Group (GTAG). The GTAF will be responsible for overseeing the government’s delivery of a “Green Taxonomy”. This common framework will offer comprehensible standards that lay out when a financial product or investment can be classed as environmentally sustainable.
In recent years, green financial products have surged in demand, but this has also given rise to greenwashing within the financial sector. There are concerns that some green financial products fail to deliver their promises of environmental sustainability. These concerns are only exacerbated further by increased cases of allegedly green investment funds that are later found to support carbon-intensive businesses.
The government’s proposed Green Taxonomy aims to stamp out greenwashing within the sector while simultaneously making it easier for consumers and investors to understand the impact that a particular company or product is having on the environment.
Ian Bradbury, CTO for Financial Services at Fujitsu UK & Ireland commented: “As financial organisations strive to provide great customer experiences, the emphasis must also be on how they align their services with customers’ ethical and social beliefs. What’s more, it’s an opportunity to position the business as a trusted pillar of society; empty promises on CSR are no longer enough. This is something Natwest recently demonstrated with its ‘green mortgage’, offering individuals who purchase an energy efficient property a preferential interest rate on their home loan.”
“Undoubtedly, environmental concerns resonate with large proportions of consumers who continue to champion climate change. IBM recently found that 90% of consumers feel that the COVID-19 pandemic affected their views on environmental sustainability. Now, the financial services industry needs to take these concerns as a serious priority,” Bradbury said.
