Sustainable Finance Guidance and New Code Requirements

The Jersey Financial Services Commission (JFSC) has introduced new Sustainable Finance Guidance which includes an update to the relevant Codes of Practice. It provides a baseline for how firms should manage sustainability-related risks, particularly climate risk, and how they should communicate sustainability-related claims.

This new guidance applies to all firms who are registered, or hold a permit or certificate as applicable under one or more of the following:

• ·       Banking Business (Jersey) Law 1991
• ·       Collective Investment Funds (Jersey) Law 1988
• ·       Financial Services (Jersey) Law 1998
• ·       Insurance Business (Jersey) Law 1996

This guidance therefore does not apply to a Supervised Person (i.e. a Schedule 2 business) however it should be noted that a Jersey Private Fund is required to adhere with section L of the JPF Guide on Sustainable Investment. It may also be prudent for the governing body of the JPF to consider its sustainability-related risks in line with this guidance.

Principle 3 – Risk Management Guidance

Following consultation with industry, the JFSC has not introduced any new Code requirements for sustainability risks as it was accepted that Principle 3 already requires firms to consider all risks when undertaking their risk assessments.

This new Guidance therefore sets out how all firms need to identify, assess and manage sustainability related risks, particularly climate change risks, as part of their risk assessments.

Reference is made to considering how climate change may influence a firm’s financial position and performance or cash flows in in line with International Sustainability Standards Board guidance. There is no requirement to assess the firm’s impact on the environment.

Principle 3 – Required Action

Firms must integrate sustainability risks into their existing governance, risk management and internal control systems. The Guidance sets out the following baseline good practice:

"Firms should consider the following:

1. Assess climate risks as part of their ordinary risk management processes, focussing on material financial impacts;
2. Document the assessment of climate risks in a manner proportionate to the business;
3. Escalate the assessment and conclusions to the board (or equivalent) for oversight and direction.

If the board concludes that risks are not material, no further action is required, other than periodic review. Where risks are material, the board should set proportionate risk management responses within existing frameworks.”

From what we have seen in clients’ risk assessments, certain aspects of climate-related risks may already be captured under operational/business continuity risks, but the assessments typically do not fully consider the material financial impacts of those events, and these should now be addressed under the Guidance.

Principle 7 – New Code Requirements (Business Integrity)

The update to Principle 7 will require firms to ensure that all sustainability-related claims are fair, clear and not misleading. Firms must be able to evidence such claims with robust supporting data and maintain appropriate documentation.

This applies to marketing, investor communications and reporting. These requirements are intended to mitigate greenwashing risk and align Jersey with international regulatory expectations.

The enhanced Principle 7 requirements will come into effect in Q1 2027. A transition period of approximately 12 months has been provided: during this period firms are expected to review existing practices and implement necessary changes.

Principle 7 – Required Action

Firms will need to:

• Identify if they have made any sustainability related claims and ensure relevant evidence held
• Review their internal systems and controls (including P&Ps) to ensure the new Code requirements will be met.