Time to paint the IFSC green

PLANS TO replicate Ireland’s success as an international financial services centre in the green sector are gaining steam, with the industry set to implement the next steps, following the High Level Group on Green Enterprise’s report, published in November, which recommended the establishment of a “Green IFSC”.

Given that tax breaks establishing the IFSC itself were introduced back in 1987, during one of the worst economic periods in Irish history, such a move may be coming at an opportune time.

Padraig Rushe, a director with Bank of Ireland Corporate Banking and chair of the IFSC Banking and Treasury Group, which has been charged with developing the idea, says the most ambitious view of the project would be to replicate the IFSC in a five-year time scale. This would mean the creation of about 25,000 new jobs, with companies operating in the green hub making tax contributions of circa €1 billion annually.

While the idea of a green IFSC has been discussed for some time now, it became a formal concept when it was put before the IFSC Clearing House Group discussions on the future of the sector held last February. Since then, Rushe and his fellow members of the Banking and Treasury sub-committee have been looking to flesh out the concept.

The size of the task is considerable – as Rushe sees it, it’s “the equivalent of creating a Lloyds of London for the insurance sector” – and he acknowledges that there are lots of missing pieces to establishing Ireland as a hub for the industry, although he is loathe to disclose specific initiatives needed due to competitive reasons.

It is likely however, that some of the initiatives will include a reversal of the Government’s decision to abolish the remittance basis of taxation, which would make Ireland a more attractive location from a tax perspective for foreign executives, as well as other fiscal enhancements. These could include the establishment of a domestic offset market.

But, he points to the many advantages Ireland does have, such as skill sets in the middle and back office; a low corporation tax rate; and financial services players who are already participants in the green sphere.

Another positive is that the Government, which got so firmly behind the launch of the original IFSC under Charlie Haughey, is also lending its support to the project. Eamon Ryan, Minister for Communications, Energy and Natural Resources, said that he would make the implementation of the “Green IFSC” one of his priorities for next year, while Taoiseach Brian Cowen has also declared his support for the initiative.

And what will be in the green IFSC? Already, Bank of Ireland is running a carbon trading operation, and Rushe suggests that there is huge potential in this area for additional front-office trading activities, as well as back office support, to set up in Dublin, given that estimates put global carbon trading volumes at $2 trillion by 2020.

Other possibilities include leveraging on the existing funds servicing activities being carried out in the green sphere, such as the administration and custody of SRI funds, as well as attracting new companies specialising in financial and support services to the growing international greentech, carbon and renewable energy industries. The creation of a green hub in Ireland will also have a lot of implications for the green domestic sector, which has been steadily growing over the past decade or so.

According to Rushe, the next step will be to conduct a feasibility study early in the new year. Depending on the outcome of this study, a project could be launched by March or April. Following that, Rushe suggests that it then will need some sort of committee or structure in place to “champion” the green IFSC. This could be along the lines of the Taoiseach’s IFSC Clearing House Group, which has driven the development of the IFSC since its very early days when Dermot Desmond was a member.

But, while there may be enormous potential in the area, Ireland is not the only country hoping to grab a slice of the pie, with several other mid-tier financial services centres looking to position themselves as a green hub. Toronto is also currently working strongly on the initiative, hoping to build a carbon economic hub in the city. In November, an action plan prepared for the Toronto Financial Services Working Group, placed a lot of emphasis on developing the centre’s strengths to attract green finance, while other north American cities such as Miami, are also looking to go green.

Nevertheless, while the challenge may be immense and the creation of an additional 20,000 jobs an extremely difficult task, plans to launch Dublin as an International Financial Services Centre were greeted with much scepticism back in 1987. While the IFSC didn’t turn out as originally envisaged, it has still been a considerable success, so maybe the same will be true of this latest initiative.