Extending the Sustainable Funds Regime Consultation Paper on Natural Capital Fund Rules (May 2022)

Summary

This document is a Guernsey Financial Services Commission consultation paper proposing new rules to let registered or authorised collective investment schemes voluntarily seek designation as Natural Capital Funds (NCFs), extending the existing Sustainable Funds regime alongside the Guernsey Green Fund. The retrieved text also includes the Commission's later Feedback Statement and the resulting Natural Capital Fund Rules and Guidance, 2022, made under the Protection of Investors (Bailiwick of Guernsey) Law, 2020, which the Commission confirms came into effect on 20 September 2022.

• NCF designation criteria: A fund seeking NCF status must commit to a nature-positive investment objective (positive contribution and/or significant harm reduction, including via transitional investments), set appropriate targets aligned to international standards, and put in place governance to monitor progress.
• Disclosures: Designated funds must make related disclosures to the Commission and to investors, including annual reporting on performance against natural capital targets; this may be satisfied through disclosure in the fund's annual report.
• Third-party verification: The governing body is expected to engage third-party expertise (or evidence sufficient in-house expertise) to confirm compliance of objectives, targets, investment criteria and monitoring with the Rules.
• Governing body responsibility: Responsibility for setting and monitoring targets and for rectifying any breach of the Rules rests with the fund's governing body, not the fund administrator, whose obligations remain those under the underlying fund authorisation/registration rules.
• Relationship to Guernsey Green Fund: NCF and Guernsey Green Fund regimes are complementary but distinct; a fund may qualify under either or both, but an existing Guernsey Green Fund seeking NCF designation must make a separate application and comply with the NCF Rules.
• Related Green Fund amendments: Alongside the NCF Rules, the Guernsey Green Fund Rules were updated to endorse the EU Taxonomy's technical screening criteria for climate mitigation and adaptation as additional green criteria, and to reference the updated Common Principles for Climate Mitigation Finance Tracking.
• Logo and branding: Designated NCFs may use the Natural Capital Fund logo per Brand Guidelines, but must stop using it as soon as designation is removed.
• Fees: No additional fee applies for NCF designation beyond the standard fund registration or authorisation fees under the Fees Regulations.

The Commission's anti-greenwashing policy, published alongside this paper, applies to all authorised and registered funds, including Natural Capital Funds. Applications for NCF designation, whether by existing funds or as part of new fund applications, could be made from the Rules' effective date.

Key obligations

• A fund's governing body must set natural capital objectives, targets and a governance framework that comply with the Natural Capital Fund Rules before seeking designation
• The governing body must ensure third-party expert verification (or documented in-house expertise) confirms compliance with the Rules' objectives, targets, investment criteria and monitoring framework
• Designated funds must make ongoing disclosures to the Commission and to investors on progress against natural capital targets, at least annually
• The governing body (not the fund administrator) is responsible for taking steps to rectify any breach of the Rules
• If a scheme ceases to meet the Rules, the designated administrator must notify investors, stop using the Natural Capital Fund designation and logo, and submit a declaration of non-compliance to the Commission
• An existing Guernsey Green Fund wishing to also obtain NCF designation must submit a separate application and ensure compliance with the NCF Rules
• Use of the Natural Capital Fund logo must comply with the Commission's Brand Guidelines and must cease as soon as designation is removed

Applies to

registered or authorised collective investment schemes, fund governing bodies, fund administrators, Guernsey Green Funds, investment managers

Deadlines

• 20 September 2022: Effective date of the Natural Capital Fund Rules and Guidance, 2022; from this date applications for NCF designation may be made by existing or new funds
• 5 May 2022 to 4 July 2022: Consultation period during which the Commission sought feedback on the proposed Natural Capital Fund Rules