Extending the Sustainable Funds Regime: Consultation Paper on Natural Capital Fund Rules

Closed 4 Jul 2022

Opened 5 May 2022

Results updated 20 Sep 2022


In our May 2022 Consultation Paper, we asked for feedback on proposals for new fund rules providing for the voluntary application for designation by the Commission of registered or authorised collective investment schemes as Natural Capital Funds (“NCFs”). Designation would be available to funds committed to making a nature-positive investment, setting and monitoring appropriate targets, and making relevant disclosures. Nature-positive investments are those with an objective to contribute positively and/or significantly reduce the harm done to the natural world, including through transitional investments.

This Feedback Statement summarises the responses received, provides the Commission’s response, and sets out the provisions of the new Natural Capital Fund Rules and Guidance, 2022 (the “NCF Rules”) that are being made under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 and that come into effect on 20 September 2022.  

Consultation responses received

Ten responses were received to our consultation from a cross-section of industry stakeholders and the Commission would like to thank all respondents for taking the time to read and respond to this consultation.

There were a number of questions and suggestions, and these are addressed as follows:


Some respondents sought to understand further the rationale behind the NCF proposals and how these relate to international developments and established fund regimes in other jurisdictions. It was suggested that there should be greater alignment with established and developing fund regimes in the EU and the UK. Concerns were raised about the future-proofing of the regime as sustainability reporting is in time more broadly adopted as part of accepted international accounting standards currently being developed by the International Sustainability Standards Board1.

Commission response

The NCF Rules have been developed to expand the scope of the Bailiwick’s Sustainable Funds designation regime providing regulatory assurance to investors. In doing so the aim is to develop a framework that is consistent with current and emerging international standards and appropriate for the Bailiwick’s fund sector.

The NCF Rules focus on the governance and disclosure arrangements as they relate to a fund’s natural capital objectives and targets. This permits the regime to leverage the Commission’s existing longstanding expertise in these areas, as the supervisor of nearly a thousand collective investment schemes with current total net asset value of £309.6 billion. At the same time this top-level, bespoke approach supports a variety of diverse fund strategies which is important in a dynamic landscape of newly emerging investment strategies and developing standards.

Climate change and nature loss are now recognised as twin crises impacting our planet and the international community is responding to these with parallel and linked initiatives. At COP26 national net zero commitments were accelerated, with 153 countries putting forward new 2030 emissions targets. At the UN Biodiversity Conference, COP15, in December it is anticipated that the world’s governments will agree a new set of goals for nature over the next decade. Broad-based action targets will be implemented through the Convention on Biological Diversity (“CBD”) to allow for the recovery of natural ecosystems by 2050, and biodiversity strategies are being set now at national and international levels to meet these targets. The UK has, for example, identified a GBP 44 billion gap over the next 10 years and is aiming to secure GBP 5 billion of large-scale private investment in nature recovery each year by 20302, while the EU has allocated €20 billion annually and 30% of its climate action budget3.

The recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”) are increasingly recognised globally and are being taken up in the standard setting work of the International Sustainability Standards Board. A parallel body the Task Force on Nature-Related Financial Disclosures (“TNFD”) is developing a disclosure framework and recommendations scheduled for completion in September 2023.

In developing the NCF proposal the Commission has aimed to follow this parallel approach to addressing the twin environmental crises with the addition of a nature-related fund designation, which directly references the relevant international targets and initiatives.

The Commission recognises that the EU’s Sustainable Finance Disclosure Regulation (“SFDR”) has been widely adopted as a disclosure standard for funds. Therefore, the linked and relevant EU Taxonomy’s Environmental Objectives4 are now included as an additional basis for the NCF, but there has been no adoption of the Taxonomy’s underlying technical screening criteria, which in any event remain under development. Guidance has also been added to confirm that, while a fund has the flexibility to make the disclosures required under the NCF Rules in a form suitable to its particular objectives and targets, disclosures compliant with Article 9 of the Sustainable Financial Disclosure Regulation may be deemed to be compliant with the NCF Rules.

Similarly, the Commission intends to permit NCF objectives to be aligned with the UK Green Taxonomy once this has been finalised.



There were questions about the interaction of the NCF with the existing Guernsey Green Fund regime and some respondents expressed the importance of maintaining a framework that is clear, cohesive and current.

Commission response

As stated in the CP the NCF is designed to complement the Guernsey Green Fund, with both frameworks sitting within the Commission’s stable of Sustainable Funds. There is naturally an element of overlap in the scopes of the regimes and it is possible that a fund might be eligible to seek designation under either or both sets of rules (for example a forestry fund might meet climate change mitigation criteria and at the same time, its objectives may also encompass the recovery and conservation of wild species). Each regime is, however, quite distinct in its overall scope and architecture and, with the creation of the NCF, the aim is to expand the scope of designation to encompass the specific objectives of nature-related investment. If an existing Guernsey Green Fund wishes to seek designation under the NCF Rules, then it must ensure compliance with the NCF Rules and a separate application should be made to the Commission.

The Guernsey Green Fund was launched in 2018, at the time breaking new ground for regulatory environmental fund designations. Recognising that new international standards would emerge, the Guernsey Green Fund Rules were designed to adopt other underlying standards to ensure that the framework could remain current. Further to the comments made above and, in line with the Commission’s previous public statement, it has been decided to endorse the EU Taxonomy for Sustainable Activities’ technical screening criteria for activities contributing to climate change mitigation and climate change adaptation as additional permitted green criteria for qualification for Guernsey Green Fund designation. This step will have the added benefits not only of clearly adopting an internationally recognised definition of sustainable investment but also expanding the scope of the Guernsey Green Fund Rules to more clearly include climate change adaptation-related investment strategies. In addition, a further update has been made to the Guernsey Green Fund Rules green criteria by adding reference to the most up-to-date version of the Common Principles for Climate Mitigation Finance Tracking.

The introduction of the NCF Rules and the updating of the Guernsey Green Fund Rules creates a suite of Guernsey Sustainable Funds, broad in scope and with greater alignment to current and developing international standards.



Some respondents indicated that the proposed NCF Rules might be strengthened by adding provisions for third-party expert verification of the fund’s targets and monitoring.

Commission response

The Commission has taken on board this feedback and recognises that the incorporation of expert verification would bolster the integrity of the NCF regime and provide a higher degree of assurance to fund investors. Guidance has therefore been added introducing the regulatory expectation that the governing body of an NCF should engage the necessary third-party expertise to confirm the compliance with the Rules of the fund’s objectives, targets, investment criteria, and the framework for monitoring and measurement of the fund’s progress against the applicable natural capital targets. It is accepted, however, that certain funds may have access to the appropriate in-house expertise and the use of such expertise is not precluded. In such cases the governing body should evidence to the Commission the strength and qualification of the in-house expertise relied upon in making the application.



A concern was expressed that the proposed NCF Rules may impose additional obligations on fund administrators, increasing costs and potentially damaging competitiveness.

Commission response

As described in the CP it is the responsibility of the fund’s governing body to ensure that the natural capital targets are appropriate and monitored in compliance with the Rules. The fund administrator’s regulatory obligations are obligations as specified in the underlying fund authorisation or registration rules. One minor amendment has been made to rule 2.5(3) to clarify that it is the responsibility of the fund’s governing body, and not that of the fund administrator, to ensure that steps are taken to rectify a breach of the Rules.



The question was posed as to whether the annual reporting requirements under the Rules might be met through disclosure in a fund’s annual report.

Commission response

The requirement to notify investors of performance against a fund’s natural capital targets may be met through appropriate disclosure as part of the fund’s annual report. Similarly, disclosure in the fund’s annual report may form the basis of the annual report to the Commission provided an adequate level of detail is disclosed. Reference should be made to the guidance to Rule 2.8.



One respondent, while supportive of the core NCF objective of significantly reducing harm to the natural world, expressed the concern that this might leave the regime open to criticism that it might enable greenwashing.

Commission response

The NCF Rules have been purposely created to incorporate objectives of either making a positive contribution or significantly reducing harm to the natural world. Some respondents observed that the former category may present a limited pool of potential fund investment opportunities but, as has been observed above, there is a significant gap to be filled in required investment to meet global biodiversity recovery targets and a large proportion of such investment will involve financing transitional activity.

For example:

  • Agricultural businesses that significantly reduce their use of chemical fertiliser and pesticide
  • Manufacturing plants, factories, or companies with such plants or factories that optimise their waste management system to ensure that significantly less harm is done to the terrestrial and marine ecosystems surrounding the factory due to the factory’s wastage.
  • Companies of any industry that alter their supply chain to reduce the harm done to nature, for example by sourcing raw materials and products that carry certifications validating their sustainability.
  • Infrastructure and real estate development projects where environmental impact assessments are conducted, and the positions of vital ecosystems are taken into account – such as avoiding building on habitats of endangered species.

All NCFs will be required to set appropriate natural capital targets and put in place a satisfactory governance framework. Compliance with these requirements is subject to formal regulatory scrutiny and an expectation of third-party expert verification. In addition, the Commission’s anti-greenwashing policy, which has been published alongside this paper, applies to all authorised and registered funds, including Natural Capital Funds. The NCF designation therefore aims to provide fund investors with assurance that their capital is being applied in line with their sustainable investment expectations.



A designated NCF will be permitted to use the NCF logo and branding. Relevant rules and guidance have been added to the NCF Rules.



There is no additional fee relating to designation as a Natural Capital Fund but the standard funds fees relating to registration or authorisation as prescribed under the Fees Regulations will apply.



Next Steps


The NCF Rules will come into effect on 20 September 2022 and applications for designation may be made by existing funds or as part of new fund applications, from this date.


1 The Commission does not intend to adopt ISSB standards prior to the endorsement of the developed standards by the relevant international regulatory standard setters such as IAIS and IOSCO. Once the ISSB has issued fully developed standards, the Commission plans to consult on the appropriate approach to adoption. This is unlikely to take place before 2024 at the earliest.

3. The sustainable use and protection of water and marine resources, 4. The transition to a circular economy, 5. Pollution prevention and control, and 6. The protection and restoration of biodiversity and ecosystems




This consultation paper proposes the creation of new fund rules providing for the voluntary application for designation by the Commission of registered or authorised collective investment schemes as Natural Capital Funds. Designation would be available to funds committed to making a nature-positive investment, setting and monitoring appropriate targets, and making relevant disclosures. Nature-positive investments are those with an objective to contribute positively to and/or significantly reduce the harm done to the natural world, including through transitional strategies.

The draft Natural Capital Fund Rules, which include guidance, are attached to this Consultation Paper at Appendix 1. The Commission welcomes feedback and comments on the draft rules and the proposals as set out in this Consultation Paper.


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