Is Ireland well placed to become a domicile for green funds?

After a year of unsettling climate events, it is obvious that the risks associated with climate change are real. However, in business, risk and opportunity go hand in hand.

The OECD has estimated that €6.35 trillion will be required globally every year to achieve Paris Agreement goals by 2030, while European Commission projections estimate that, in the climate and energy areas alone, annual investment of €240 billion will be needed to hit the EU’s 2030 targets. As we endeavour to meet climate goals and build greater sustainability into industry and commerce, Ireland has an opportunity to step up to meet these challenges and become a global leader in green finance.

The European Union is already a leader in terms of green finance and Ireland’s thriving financial sector means we are uniquely positioned to make a mark as a green finance hub. In World Bank assessments, Ireland’s regulatory quality ranks above the European average – so we’re off to a good start. Now the question is, what else needs to be done to enhance Ireland’s attractiveness?

Patricia Callan, head of sectors and director of Financial Services Ireland (FSI) group at Ibec, says Ireland’s talent and skills place us to the fore as a potential green finance hub.

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“When you look at green finance hubs and sustainable finance, the crucial differentiators between countries and companies are education and skills, curiosity and being proactive about upskilling staff.”

She also cites Ireland’s strong ecosystem of financial companies and legal and accountancy firms, as well as a supportive Government and State agencies as positives that support growth in the sector.

However, upskilling to meet the demands of a carbon zero future is a work in progress – a collaboration between FSI and IFS Skillnet, Sustainable Finance Skillnet, the Compliance Institute and the IOB has produced the world’s first professional diploma in sustainable finance for compliance professionals.

“The first class of 77 students started in February 2023 and the second course will start in February 2024,” says Callan.

Another issue of concern is the growing gap between legislative frameworks in the EU and the United States, “which is difficult for global financial services companies to navigate”, according to Callan. Taking a global view is crucial, she says, because, “wind, wave and solar are not limited by country borders”.

Callan and her colleagues at FSI have identified opportunities to develop Ireland’s domestic green bond market and to further its potential as an international green hub.

While Ireland currently supports international green bonds, launching and trading on Euronext Dublin, she maintains the country has the skills necessary to support the issuance of bonds and listings.

“Both the legal know-how and the listing know-how are here in Ireland. The structure to allow the bonds to be domiciled is here,” she says. “What we see is that there is an opportunity to scale Ireland’s participation in this area. Specifically, Ireland could do more active trading and underwriting. For this to happen, financial services companies that have a base here already could move their bond trading and their underwriting bases here too.”

Jorge Revilla is a partner in KPMG and leads its Irish asset management practice. He agrees that there is a great opportunity “to be a centre of excellence and a green domicile”.

“Similar to what we do with ETFs [exchange-traded funds], money market funds and liquid alternatives, we have been able to build that ecosystem over time and it’s based on talent,” he says. “And now we are a centre of excellence within Europe.”

Revilla has, for a long time, advocated for Ireland becoming a domicile for green funds. While he admits, “we have a bit to go”, there is no doubt in his mind that we can get there. For him, the talent and upskilling requirements exist across the whole ecosystem, with expertise not just in finance but in everything from engineering to biodiversity.

“We need to be ready to analyse ESG ratings and risk management procedures. To integrate all of that we’re going to need a broad range of talent,” he says. “That’s going to be a journey and I think we need to close that gap pretty quickly.”

Revilla sees a window of opportunity – but believes it’s one we need to jump through before one of our neighbours beats us to it.

“The UK is on par with Europe and the way it has implemented the rules probably means it is going to be a formidable competitor,” he says, adding that the US is, in his view “lagging behind”.

He cites the Scandinavian countries, the Netherlands and Germany as all being similarly strong in the space. Essentially, in Europe, we’re all singing off the same hymn sheet. “The regulations are European, so it’s really about how we interpret them in a balanced manner,” adds Revilla.

This principles-based approach is, Revilla says, “about how we embed that into strategies, risk appetite, disclosures, selling to investors and effectively making a choice in your risk management”.

“There will be blips and hurdles as we go along in all of this,” he says. “But I think that at a certain point in time the playing field will effectively be the same for everyone.

“We’re coming from a position of strength, with the Green IFSC a number of years ago. To nail this is going to be fundamental because once you get the brand recognition and the right balance between regulation and substance, and embed that into your risk management, strategy and vision, it’s going to be great.”