What is ESG?

ESG, often linked to sustainable and/or impact investing, is a term used in capital markets and by investors to evaluate the sustainability and ethical impact of a company.  It comprises environmental considerations such as climate change, social considerations that include diversity and pay equality and governance considerations which extend to executive compensation and employee relations.  The prominence of ESG considerations in the financial markets – particularly environmental factors – is becoming increasing apparent, with oil giant BP announcing recently that it intends to cut its carbon emissions to net zero by 2050.  It also plans to increase the proportion of its investment into non-oil and gas business (among other things).

Initially feared as potentially resulting in lower returns on investments, ESG focused investments appear to have performed well in recent times, outperforming some of their traditional non-ESG counterparts.  Take the S&P500 ESG index for example: this stock market index, which tracks large US companies with high ESG ratings, outperformed its traditional counterpart the S&P500 index in the first quarter of 2020, proving that sustainable investing can be just as profitable as traditional investing.

The Covid-19 Factor

Covid-19 has helped to put issues and concerns about sustainability firmly on the political agenda.  People everywhere took note of the changes in air quality and the reported resurgence in wildlife as a result of restrictions on the movement of people due to enforced lockdowns.  These experiences, difficult as they have been, have had the unexpected positive side effect of putting sustainability on corporate agendas as well.  As noted above, where the returns are favourable and ESG funds are out-performing traditional indices, more people will take note.  This may lead to an increase in:

  • commissioning of reviews of the wider environmental impact assessment in sectors where this has traditionally not been undertaken;
  • giving non-financial reporting within annual financial statements such as a voluntary section on ESG and Corporate Social Responsibility provisions;
  • undertaking supply chain environmental and sustainability assessments of the underlying investments and the environmental impact of service providers;
  • seeking additional due diligence in acquisitions or reorganisations to give due attention to ESG and sustainability factors beyond financial impact; and
  • consideration to appropriate and genuine performance indicators, ISO criteria and marks and branding.

The EU Taxonomy Regulation

As mentioned earlier, the growth in ESG-labelled investments has seen an adoption of ESG related laws and regulations by various international regulators.  Most recently the EU introduced Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation) which came into effect on 12 July 2020.  The framework established by the Taxonomy Regulation helps to assess how sustainable (or ‘green’) an economic activity is on a scientific, comparable basis.  This in turn allows for the assessment of a particular company or portfolio on its ESG credentials.  The Taxonomy Regulation lists specific environmental objectives that the economic activities must contribute to in order to be considered environmentally sustainable.

Of greater significance are the increased disclosure obligations that will apply to financial market participants under the Taxonomy Regulation.  It will require financial market participants to disclose information on how, and to what extent, the underlying financial product qualifies as environmentally sustainable under the Taxonomy Regulation.  It will also require an express negative disclosure where a financial product does not take into account the EU criteria for environmentally sustainable investments.


Concerns have been raised about the “greenwashing” of funds and products.  The term refers to the practice of marketing investments and products to appear more sustainable and ethical than they really are.  Until recently, there was a lack of consistency globally in terms of governmental and regulatory responses to ESG with some companies focusing on environmental issues more than on the social or governance aspects.  The Taxonomy Regulation will help to prevent this as it becomes a benchmark standards indicator.

The Appleby Perspective

The jurisdictions in which Appleby operates are setting a new pace in recognition of the importance of ESG investing for international investors.  Below we describe some of the developments in our key jurisdictions.


Bermuda has very much embraced an increasing focus upon sustainable business models, initiatives and products. Those able to demonstrate that ESG issues have been considered and taken into account in both new and established businesses do seem to resonate more deeply with an increasingly ESG-conscious consumer base.

Of course, whilst many people may well have been supportive of ESG principles in the abstract, there has perhaps traditionally been a reluctance to include ESG compliant investment products within their own investment strategy. COVID-19 has undoubtedly caused many to pause and re-assess a variety of practices, values and areas upon which emphasis should be placed, but we have seen clients operating funds with ESG components for a number of years.

Using Bermuda’s flexible fund and legislation surrounding corporate structures, clients have been able to offer funds which give their investors within a fund the option to elect whether or not they wish to participate in investments that are not ESG compliant.

Amidst the new normal presented by COVID-19, the market has seen new ESG products that address historic challenges faced by managers seeking to deliver strong performance by finding solutions in respect of risk factors that arise as a result of an ESG focus.

Bermuda has been a very active participant in the growing digital asset and blockchain space. A number of these projects have an ESG component, purporting to offer a solution to problems faced by societies around the world which are experiencing various challenges. Bermuda’s strong fund regime combined with comprehensive regulation of the offering of digital assets and operation of digital asset businesses, means that the Island can be a strong partner to those looking to develop and execute innovation in ESG.

British Virgin Islands

The BVI’s commitment to building a flexible yet effective and credible regulatory regime whilst maintaining a tax neutral environment provides a fertile setting for ESG fund structures to thrive. Investors are also attracted to the jurisdiction’s various cost-effective fund products and vehicles, including the innovative BVI limited partnership vehicle introduced in 2017, and the proven capabilities of its business services and industry professionals.

The BVI offers a diverse selection of fund products ranging from the start-up manager setting up an incubator fund to established institutional fund managers. Potential vehicles include internationally recognised BVI business companies, unit trusts, limited partnerships or segregated portfolio companies which allow for statutory segregation and ring-fencing of liabilities.

Recent updates to the BVI investment funds legislation ensure that the BVI is well positioned to keep pace with internationally recognised norms and best practices including:

  • clear and comprehensive valuation policies
  • updated flexible auditing standards
  • the independence of fund managers from administrators or the disclosure of any conflicts; and
  • the safekeeping (and segregation where necessary) of fund property

In working with clients and particularly private equity clients in setting up and operating BVI ESG funds, it is the fund’s constitution which sets out the fund’s ESG investment and operating principles and provides the mechanism of enforcing them. This is achieved primarily by the inclusion of bespoke provisions in a BVI corporate ESG fund’s articles of association dealing with environmental, social, and/or health and safety objectives and schedules identifying prohibited activities which the fund will not invest in or finance, such as any activity, production, use, distribution, business or trade involving, amongst others:

  • forced labour (as defined by the ILO conventions) or child labour (as defined in the ILO Fundamental Human Rights Conventions (Minimum Age Convention C138, Art 2);
  • cross-border trade in waste and waste products, unless compliant to the Basel Convention and the underlying regulations;
  • activities or materials deemed illegal under host country laws or regulations or international conventions such as ozone depleting substances, PCB’s (polychlorinated biphenyls) and other hazardous material; wildlife or products regulated under the Convention on International Trade of Endangered Species or Wild Fauna and Flora (CITES); or unsustainable fishing methods;
  • radioactive materials, excluding medical or quality control measuring equipment and unbounded asbestos fibres;
  • pornography and/or prostitution;
  • racist and/or undemocratic media; and
  • where the primary business activities involve alcoholic beverages, tobacco, weapons and munitions and/or gambling and casinos.

Further the ESG fund’s articles of association may restrict the countries in which the fund may invest in or finance; e.g. it may be limited to businesses operating in States listed in the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD).

The BVI has, to date, elected not to enact specific legislation incorporating ESG principles but rather to rely on the freedom and flexibility offered in its corporate, partnerships and trust structures and funds regime so as to provide the ESG fund manager with the maximum versatility in structuring the ESG fund. The BVI as a jurisdiction, will no doubt continue to attract ESG funds as sustainable investing becomes an increasingly popular alternative to traditional investment products in the EU and globally.

Cayman Islands

The Cayman Islands’ rich diversity of habitats is a major lure for visitors.  Marine research and biology are key features of the Cayman Islands’ product, tempting tourists and scientists to its shores.  A significant portion of the economy depends on environmentally responsible tourism and, as a jurisdiction, the Cayman Islands acknowledges its own responsibility to minimise any negative impact upon its natural environment.  Following a period of rapid development, the Cayman Islands has embraced the urgency of sustainability and the very conscious need to protect its natural treasures.

The evolution in improving the Cayman Islands’ sustainability is not limited only to its own environment.  While socially responsible and ethical investment philosophies have been with Cayman for a long time, in the context of investment strategies Cayman has also seen a shift from traditional, purely profit-driven results to ESG investing, with sustainable and positive impacts both socially and environmentally.

As investors give greater consideration to, and funds increasingly take account of, ESG factors, the jurisdiction is well-placed to facilitate investor demands and has the flexibility to allow funds to quickly adopt sustainable investment strategies with bespoke ESG provisions.

In the Cayman Islands, ESG investing can be facilitated from the outset with the efficient and cost effective formation of fund vehicles integrating ESG themes and strategies.  Cayman’s flexible and non-prescriptive funds legislation also permits the amendment of strategies of existing funds, the creation of separate classes within a fund, or side letter provisions to specifically accommodate the increasing demand for more environmentally and socially-conscious investing (subject, of course, to the existing requirements of a fund’s constitutional and offering documents).

The Cayman Islands has long been committed to implementing and exceeding best international practices and the jurisdiction is compliant with the anti-money laundering and anti-terrorist financing requirements of the Organisation of Economic Cooperation and Development (OECD) and the Financial Action Task Force.  The Cayman Islands is on the OECD’s “white list” and has entered into a multitude of tax information exchange agreements.  Due to its well-established legal system, stability and strong financial services industry, the Cayman Islands also has a reputation as a high quality and popular offshore centre.  This has been confirmed beyond doubt by the registration of over 12,700 Cayman Islands private funds with the Cayman Islands Monetary Authority between 16 May and 7 August 2020 as a result of EU requirements on transparency, and best market practice, enhanced anti-money laundering and other key regulatory standards.

The Cayman Islands has the right combination of expertise, flexibility and governance and is open for business to embrace ESG initiatives.


Guernsey’s commitment to ESG considerations has been on the increase over the past few decades.  From an environmental perspective, Guernsey has ratified several international environmental conventions through the United Kingdom.  A body of environmental legislation has been created in relation to wildlife, waste and water pollution.  Many international conventions (including but not limited to CITES, RAMSAR and the Convention on Climate Change) have been further enacted into Guernsey’s domestic laws.

The Guernsey Financial Services Commission (GFSC) has developed a “green approach” to demonstrate its commitment to develop climate finance through regulatory tools and support the finance sector throughout the transition towards a low carbon economy.  The GFSC believes that further finance flows into green investments are consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

In June 2020, the local government set a target objective for the Island’s emissions to be applied to reduce emissions, in order to mitigate or compensate climate change impact.  The energy policy set an “interim” target of a 57% reduction on 1990 emission levels over the next ten years.  Incidentally, a local study was carried out to investigate the impact of the Covid-19 lockdown measures on local air quality.  It found notable reductions in nitrogen oxides, as traffic volumes fell to around a third of normal levels during the recent lockdown.

Guernsey, as a member of the United Nations’ Finance Centres for Sustainability Global Network, has been at the forefront of the global sustainable finance sector.  In 2018, Guernsey introduced both the Guernsey Green Fund and TISE Green.  There are now seven Guernsey Green Funds launched with a total net asset value of £2.7 billion (as of 31 December 2019).

Guernsey released the Green Private Equity Principles (Green PE Principles) in June 2020.  The Green PE Principles are comprised of a voluntary guide to best practice for general partners on sustainability and fighting climate change.  Guernsey’s Insurance Association has also confirmed that it is developing a sustainable finance framework for ILS.

The Taxonomy Regulation has also been recognised in Guernsey and will provide businesses and investors with a common language to identify what economic activities can be considered environmentally sustainable. The Taxonomy Regulation is an additional permitted standard for adoption by a Guernsey Green Fund.

Guernsey is a full member of MONEYVAL and has a regulatory regime that is fully compliant with global standards including GDPR, ECHR and CRS, FATCA, and BEPS.

Isle of Man

The Isle of Man’s enduring commitment to ESG is neatly demonstrated by the Isle of Man being the only entire nation in the world that has been awarded a UNESCO Biosphere status, an accreditation that the Isle of Man has held since 2016.  As a UNESCO Biosphere, the Isle of Man is committed to working towards a more sustainable future, driven by the UN’s 17 Sustainable Development Goals.

ESG factors play a prominent role in Isle of Man political and business life.  On a political level, investments made on behalf of the Isle of Man Government are constantly monitored by officials to ensure compliance with ethical principles.  On a business level, many local investment managers and life insurers offer specialised ESG services.  In one example of this, Appleby’s client, RL360, recently introduced a “responsible investing” sector in its defined fund ranges and integrated a third-party sustainability rating into the fund centre on its website to enable advisers and policyholders to understand how the funds are rated from an ESG perspective.

Isle of Man companies are frequently used for green financings.  Appleby’s Isle of Man office recently advised on a green bond issue, under which our client committed to use the proceeds to finance/refinance existing and future projects, which will improve the environmental performance of its property portfolio and contribute to its own climate impact mitigation objectives.

Although the Isle of Man has yet to see any ESG principles become formally embedded in legislation, the Isle of Man Government has made a formal commitment to reach net zero carbon emissions by 2050, in line with scientific advice from the International Panel on Climate Change, and the Isle of Man Government is currently consulting on a Climate Change Bill, which has been informed by an independent report produced by Professor James Curran, an environmental leader with extensive climate change experience.


Following on from the introduction of the Taxonomy Regulation by the EU and the adoption of ESG regulations in other parts of the world, the Jersey Financial Services commission (JFSC) has begun a consultation process in relation to introducing an equivalent framework for Jersey-based investment funds which seek to market themselves as ESG funds.

The JFSC has published a consultation paper on enhancements to sustainable investments.  The consultation paper seeks to address the risk of greenwashing.

Under the consultation paper, the JFSC proposes that any Jersey registered fund or entity which provides financial products claiming to be ESG complaint would be required to make various disclosures by:

  1. producing a public statement of its environmental, sustainable or social investments (ES Investments);
  2. implementing and undertaking an investment management process consistent with the ES Investments by way of appropriately verifying and documenting the ESG credentials in a due diligence process and reviewing annually to ensure continued ESG credentials of the investment; and
  3. ensuring that appropriate corporate governance and organisational structures are in place to implement and monitor the investment management process in respect of the environmental, sustainable or social investment of a fund or investment business.

Jersey service providers, such as Appleby Global Services, are well placed to provide to ESG focused funds and investment products the support in terms of compliance and governance as envisaged in the consultation paper.  Appleby has significant experience in assisting funds in implementing their investment strategies.

Jersey’s commitment to high quality compliance and enforcement has also seen it recommended by the European Securities and Markets Authority to be included in the first group of ‘Third Countries’ whose alternative fund managers can seek authorisation by way of obtaining an AIFMD passport, to market alternative investment funds to investors within the EU.  Jersey’s world-renowned reputation in regulation and compliance makes it an attractive jurisdiction to form and administer ESG mandated investments and funds.


In 2008 the Mauritian Government introduced the concepts of ‘Maurice Ile Durable’ and ‘green economy’ and gave effect to its commitment to the Small Island STATES Development and conventions such as the Rio Declaration on Environment and Development 1992.

‘Maurice Ile Durable’

The ‘Maurice Ile Durable’ (MID Scheme) was introduced following the 2007 global energy crisis.  It is a long term scheme which seeks to transform Mauritius into a sustainable island through a national strategy for sustainable development.  It takes on board the aspirations of the whole society in order to create a strong sense of belonging to the nation.  Thus, on 17 June 2011, the Mauritian Government adopted a National MID Vision focusing on Energy, Environment, Employment, Education and Equity, (referred as the 5Es).

In order to further strengthen the MID Scheme, the Mauritian Government set up six working groups dedicated to developing the 5Es of the MID Scheme.  The objective of the working groups was to identify a methodology to bring to fruition the “National MID Vision” and make recommendations in respect of each of the 5Es to help formulate what has been termed as the MID Policy, Strategy and Action Plan.

In May 2013, the Ministry of Environment, Solid Waste Management and Climate Change introduced the final report on ‘Maurice Ile Durable: Policy, Strategy and Action Plan’ to provide guidelines for the MID Scheme on matters such as empowerment, governance, inclusive partnership and cooperation, integration and holistic thinking, internalisation, science-based governance, implementation and delivery of actions, precautionary principle, green growth, innovation, polluter pays principle, preventive approach, communication and global governance. Furthermore, the Maurice Ile Durable Fund (MIDF) was set up as a specialised fund to finance projects, schemes or programmes under the MID Scheme.

The Implementation of the MID Scheme

Wind farms were set up in Rodrigues and Mauritius to exploit renewable energy.  The MIDF financed the replacement of conventional lamps by compact fluorescent lamps in buildings.  Solar water heaters were made available to many beneficiaries to promote awareness of renewable energy.

The ‘polluter pays principle’ was implemented through the Environment Protection (Amendment) Act 2008 which made ‘discarding or placing or throwing or leaving behind or causing to be dropped any litter or any other article…’ an offence punishable by a fine.

The Mauritian Government is now transitioning into a paperless system.  The recently enacted Finance (Miscellaneous Provisions) Act 2020 provides that application and submission of any permit, licence, authorisation or clearance can be made electronically.

In 2015, Mauritius imposed a plastic ban through the introduction of the Environment Protection (Banning of Plastic Bags) Regulations 2015.  These regulations further state that no person shall import, manufacture, sell or supply a plastic bag.

Mauritius has been designated by the International Union for Conservation of Nature as a “Centre of Plant Diversity” and is included in the Madagascar and Indian Ocean Islands Biodiversity Hotspot.

What is the ‘Green Economy’?

The United Nations Environment Programme (UNEP) has defined the concept of a ‘green economy’ as one that results in improved human wellbeing and social equity, while significantly reducing environmental risks and ecological scarcities.  It originates from the “Green Economy and Social and Environmental Entrepreneurship Development in Africa” Project funded by the European Union and the Partnership for Action on Green Economy.

In Mauritius, a multi-stakeholder consultation workshop brought together local actors who identified seven sectors which would help Mauritius transition into a green economy, namely: agriculture, energy, waste, water, tourism, manufacturing and transport.  The concept of green economy has been customised to the national context to create a quantitative simulation model, the Mauritius Green Economy Model (M-GEM).

The agriculture, energy, transport, manufacturing, tourism, waste and water sectors were considered as having significant potential for greening the economy in Mauritius.  Despite the fact that Mauritius has been heavily reliant of fossil fuels and only a tiny share of the total agriculture area is under sustainable cultivation, there is leeway to improve the M-GEM.  The effort to improve is being furthered by the Global Fuel Economy Initiative, a multi-national initiative.  Mauritius is one of the pilot countries from the African region to undertake this project. The implementation of the project started in March 2013 and aimed at developing a cleaner, more efficient vehicle strategy and policy package.

Mauritius as an International Financial Centre for ESG Ventures

All of the above solidifies Mauritius’ place at the forefront of sustainable development in Africa.  The focus on ESG considerations locally is also echoing throughout Mauritius’ international business sector.  Mauritius’ flexible, commercial and popular corporate and funds regime is ideal for funds and investors looking for the right platform for ESG ventures.


With the Seychelles being one of the Small Islands Developing States (SIDS), its Government has for a long time now been very conscious of its high vulnerability to climate change, resulting in sea-level rise and coastal erosion.  The Seychelles comprises an archipelago of 115 tropical islands, making up a total landmass of only 452 km2 in the middle of the Indian Ocean, with 1.3 million km2 of ocean territory being its exclusive economic zone (EEZ) which is over a thousand times the size of its land territory. Therefore, ESG has always been of enormous importance for the country and ingrained in the national policy-making is the protection of the environment, its natural heritage and sustainable development, given that over the last 40 years tourism has been built up as the first pillar of the Seychelles economy.  By 2011, the Seychelles Government achieved its goal under the Convention on Biological Diversity of conserving over 50% of its islands’ territory and the Seychelles proudly stands out as the first country in the world with half of its territory protected by law as national parks and nature reserves.  Also, with the assistance of The Nature Conservancy, the Seychelles have developed a plan to protect 30% of its EEZ while sustainably managing the remaining area.

The Seychelles’ strong national policy in response to climate change is well documented in the Seychelles Biodiversity Strategy and Action Plan (2015-2020) and the Seychelles Strategic Land Use Plan (2040).

Blue Economy

The Seychelles is well recognised amongst the SIDS members as a global leader in Blue Economy.  A Ministerial Department especially for Blue Economy was established in 2015 to promote the sustainable use of marine resources and better develop the business activities carried out in the EEZ, in accordance with the Seychelles Marine Spatial Plan (SMSP). The SMSP contains a Blue Economy roadmap which sets out how the Seychelles will make maximum use of its EEZ in the most sustainable manner.   Also in 2015, the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT) was legally set up with a mission to strategically invest in ocean stakeholders to generate new learning, bold action and sustainable blue prosperity in Seychelles.

With the support of The Nature Conservancy, SeyCCAT has managed to purchase and restructure a USD21.6M debt for the Seychelles Government and is providing an annual fund, which is accessible by non-governmental organisations, the private sector, individuals and government departments.  In collaboration with the World Bank, the Seychelles Ministry of Finance and Economic Planning, Blue Economy Department, issued the world’s first sovereign Blue Bond, worth USD15M in October 2018. The proceeds from the Blue Bond are being managed by SeyCCAT, through the Development Bank of Seychelles, to mobilise private sector investment to support ocean economy and marine protection.  The World Bank views the Blue Bond as a model for other SIDS and it, like the Green Bond, serves as another example of the powerful role that capital markets can play in supporting sustainable objectives.

The former President of Seychelles received the Blue Economy Award on Maritime Sectors in the 2018 Sustainable Blue Economy Conference in Nairobi, Kenya. This award was seen as an opportunity for the Seychelles to engage further with other African countries and international partners, namely the Regional Economic Communities.

The COVID-19 pandemic has brought a virtually complete shutdown in international tourism, bringing an economic crisis which has taught the Seychelles Government that it can no longer rely on tourism as its main pillar of the economy.  It has no choice but to look to its second pillar in the fisheries industry for a rescue plan and Blue Economy investment is now being pushed forward more than ever.   The World Bank is assisting Seychelles on an ongoing basis to develop and diversify its Blue Economy with the “Third South West Indian Ocean Fisheries Governance and Shared Growth Project” (SWIOFish3).   SWIOFish3 is a project supporting countries in the region as they transition their fisheries industry to sustainable practices, governance and management.

The Seychelles Investment Board expects that the Blue Economy will deliver investment opportunities for diversification in the Seychelles economy, creating sustainable wealth from sectors such as sustainable fisheries, mariculture/aquaculture, biotechnology research, port services, ship repair, maritime legal services, laboratory services, marine equipment repair and sale, renewable energy development and hydrocarbons/mineral exploration and extraction.  For more information on investment in the Blue Economy in Seychelles please click here .

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