Climate Change: Amendments to Guernsey’s Financial Sector Corporate Governance Code – Environment

Guernsey: Climate Change: Amendments to the Guernsey Financial Sector Corporate Governance Code

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The Guernsey Financial Services Commission (the GFSC) at published an amended version of the Guernsey Finance Sector Code of Corporate Governance (the Coded) which requires the boards of directors of the companies to which the code applies to take into account the impact of climate change on their strategy and their risk profile and, when they deem it appropriate, to publish information relating to the change climatic.

This amendment to the code was consulted as part of the Commission’s spring green consultation, published on March 11, 2021. A copy of the new code is available here.

The Commission’s aim in amending the code is to ensure that businesses in the Bailiwick of Guernsey are prepared to address this issue in a manner commensurate with the nature of their business, whether through customer demand for more sustainable solutions or the impact of climate change policies on their asset bases, for example.

Who does the Code apply to?

The Code provides a framework which applies to all companies which are licensed by the GFSC under the various regulatory laws or which are registered or authorized as collective investment schemes in Guernsey.

The Code does not cover entities licensed under the regulatory laws of Guernsey which are Guernsey branches of overseas domiciled companies or which are partnerships. Companies that report to the UK Corporate Governance Code or the Association of Investment Companies Code of Corporate Governance are deemed to comply with this Code.

What does the Code require?

The Corporate Governance Code for the Financial Sector is structured around eight key principles and then provides additional guidance on how to meet these principles. They are:

  • table – companies must be led by an effective board of directors, responsible for governance;
  • directors – the directors must collectively assume the responsibility of directing and supervising the affairs of the company;
  • business conduct and ethics – all directors must maintain good standards of business conduct, integrity and ethical behavior and must act with due care and diligence and act at all times with honesty and openness;
  • responsibility – the board should have formal and transparent arrangements in place to present a balanced and understandable assessment of the company’s situation and outlook and to review how it applies the principles of financial reporting and internal control;
  • risk management – the board should provide appropriate oversight of risk management and maintain a robust risk measurement and control system;
  • disclosure and declaration – the board of directors must ensure timely and balanced communication to shareholders and/or regulators of all material matters relating to the company;
  • remuneration – the board of directors must ensure that the terms of compensation are structured in a fair and responsible manner and that the compensation policies are compatible with effective risk management; and
  • shareholder relations – the board must ensure that satisfactory communication takes place with shareholders and is based on a mutual understanding of needs, objectives and concerns.

As part of the principle of risk management, the Code now requires, under a new heading Climate Change, that the Board the impact of climate change on the business strategy and risk profile of the business and, if appropriate, in the judgment of the board, make timely disclosures relating to climate change.

When will the amended Code take effect?

The amendment to the Code will come into effect for fiscal years beginning on or after October 1, 2021.

What action should you take?

  • Undertake a review of your business strategy and risk profile and understand the impact of climate change, seeking appropriate advice where necessary.
  • Take action now to improve your board and management team’s understanding of climate risk.
  • In general, ask yourself if you are clear about your disclosure and reporting obligations under the Code.
  • And update internal procedures and training to make sure you’re ready.

We recognize the complexity of climate change and have developed solutions for our clients to manage climate risk. Given the potential impact of physical and transitory climate-related risks on many portfolios and activities, certain climate change assessment and reporting standards are increasingly being codified as legal requirements.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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