Otherwise known as sustainability linked lending (SLL), the use of ESG in financing arrangements can allow borrowers to achieve lower interest rates by meeting set KPI. However, our experience has seen that agreeing those KPIs between the lender and the fund can be a difficult part of implementing SLL documentation – lenders wanting to ensure there are meaningful KPIs to avoid any ‘greenwashing’ concerns with sponsors wanting to ensure any KPIs are not unattainable. One key reason for this is the fact that there is no ‘market’ or ‘standard’ position, indeed even defining what a sustainable investment is can take time.

Due to the increased focus (and popularity) on sustainable investments, many jurisdictions are looking to harmonise disclosure and reporting requirements relating to sustainable investments through legislative means. The EU can be seen to be taking a lead on this through their sustainable finance and climate change agenda which has seen the following regulations come into effect in the last 12 months:

  • the taxonomy regulation: which came into force on 12 July 2020 (although it will not start applying in practice until 1 January 2022 at the earliest); and
  • level 1 of the sustainable finance disclosure regulation (SFDR): which come into force on 10 March 2021 (to be followed by level 2 which will now be phased in from 1 July 2022).

In Jersey, following recent consultations on proposals to address the risk of greenwashing, the Jersey Financial Services Commission (JFSC) has now published its new disclosure requirements relating to sustainable investment. These new disclosure requirements came into force on 15 July 2021 and apply to all new funds registered from that date. There is a six-month transition period until 17 January 2022 for funds already in existence on 15 July 2021. There are separate disclosure requirements for persons undertaking fund services business and investment business.

For the purposes of these disclosure requirements, the JFSC has defined ‘Sustainable Investment’ as an investment or investments which contribute to either an environmental or social objective – which, while it tracks that defined in SFDR, does not contain the same level of detail.

When a fund is marketed on the basis of investing in a Sustainable Investment as part of its investment objectives, it must disclose (via website or offering documentation or documents in which the terms of investing in the fund are contained such as a subscription agreement) all material information in relation to the Sustainable Investment strategy and objectives, including but not limited to:

  • alignment with any specific taxonomy or where there is no alignment to a specific taxonomy a statement to that effect;
  • the proportion of investments that are sustainable;
  • the basis on which due diligence, benchmarking, and performance measurement and reporting, are likely to be conducted; and
  • any limitations to methodologies and data.

Of note, the JFSC is not prescribing a template form of disclosure – to allow funds to utilise existing templates where appropriate to avoid duplication of reporting. In addition, these new requirements do not mirror those contained in SFDR. The JFSC intentionally steered clear of having a complex set of requirements which differ depending on nature and degree of sustainable investment.

Failure to comply with these disclosure requirements represents grounds for the JFSC to take regulatory action.

These regulatory requirements may help simplify matters in setting KPIs for SLL facilities. Parties subject to these new disclosure requirements will have enhanced data regarding their sustainable investments and the sustainability related disclosures imposed on financial market participants will be harmonised.

Key contacts

Andrew Weaver

Partner: Jersey

T +44 (0)1534 818 230
E Email Andrew

Daniel Healy

Counsel: Jersey

T +44 (0)1534 818 010
E Email Daniel

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