Can Monaco be a global centre for sustainable finance?

2022 02 03 payiatakis

While Monaco has long-been an attractive financial centre, particularly for family capital, to hold onto this position requires it to evolve to become more sustainable.

Private capital is increasingly being invested in sustainability – in fact, faster than previously expected according to the eighth annual ‘Investing for Global Impact’ (IFGI) report. The 2021 edition of this report, which Barclay Private Bank proudly sponsors, surveyed more than 300 leading investors with an average investable wealth of $833m about their perspectives and portfolios around sustainable investing.

In the prior edition, respondents expected for 22% of their portfolios, on average, to be sustainably invested by 2020. When asked this year, respondents reported they’d actually allocated 36%. And in next five years, they now expect it to rise to 54%.

So how do we serve those clients’ aims? And is Monaco positioned as a financial centre to support their transition? What can financial firms do to maintain, and improve, its role as a sustainable financial centre?

Natural advantages

Helpfully, the Principality already enjoys certain ecological and evolved advantages.

Whenever there, I’ve always felt its proximity to the sea and surrounding hillsides means residents and visitors have a visible connection to nature. As well, maintaining a city-state in roughly 200 hectares inherently encourages a mindset around sustainable living.

This setting is definitively supported by its society. Foremost, the visible advocacy and leadership of H.S.H Prince Albert II and extensive work of his Foundation. As well, within our own clients we can see a well-networked community of long-standing families and global citizens with international outlook.

Finally, the stability of the financial system as well as its legal and regulatory framework provide a solid foundation. Now, in its pandemic response and proactive efforts to green its own finances, we’ve seen clear governmental support and action for sustainability. Allocating one-third of the national recovery plan to the “Green Fund” sends a signal, and capital, to encourage sustainable innovation and greening of key sectors such as construction, transport, or tourism.

Needed action

However, fertile soil alone does not mean a plant will grow successfully.

To be a leading international centre in sustainable finance requires nurturing the local industry and addressing challenges that the wider movement faces. The launch of the Monaco Sustainable Finance initiative by the Minister of Finance and Economy provides an excellent start and collective forum for creating action plans with the financial sector.

But the question of where to focus efforts will arise. Here we suggest three areas, where we are supporting our clients and the industry, and would welcome greater collective efforts.

Improving investors’ understanding

Foremost, investors still struggle to understand how they can invest sustainably and the implications on financial performance. Through the IFGI research, we asked the least active respondents their primary barriers to start or increase their sustainable investing activity. The top two reasons were concerns about financial underperformance (45%) and confusion about terminology and processes (35%).

Those knowledgeable and active understand that these are myths and misperceptions. However, they remain a hurdle to getting more investors and capital active. For our part, ongoing education with our advisors and monthly articles in our ‘Market Perspectives’ publication is helping answer common questions from clients on key sustainability topics.

It is important for the financial community across Monaco to increase its communication around these topics; but in clear and transparent way and without over-marketing of the promise of sustainable investing. We need to collectively work to avoid risks of greenwashing and improve investors’ comprehension for the entire community reach a baseline of knowledge.

Greater visibility of opportunities

Secondly, investors need to view Monaco as a jurisdiction where they can find unique and attractive sustainable investments. Returning to the survey, respondents were asked where the industry had made progress over the last ten years. In the bottom three, was providing high-quality investment opportunities with a track record.

At Barclays Private Bank, being part of a universal bank with Investment and Corporate Banking services, a global footprint and commitment to sustainability, is generating an incredible range of opportunities for our local clients – from vertical farms, to electric yachts, to alternative proteins, to circular economy.

At the same time, certain sectors do not always draw the capital they both deserve and require. That´s why we´re supporting the Monaco Ocean Week led by Foundation Prince Albert II to bring its excellent work more visibility in the investor community – and we hope more capital, needed to preserve our oceans.

Holistic thinking with clients

Finally, we’re finding with our global families, an interest is not only on “green” their portfolios, but also their family businesses.

Again, the Barclays Private Bank team in the Principality, under the leadership of Gerald Mathieu, CEO of Barclays Monaco, can leverage the wider Barclays infrastructure, connecting our clients to a broader offering to provide green lending or sustainability-linked capital raising. But the conversations I’m having are as much around the family dynamics as family businesses.

This is critical for Monaco where first generation wealth creators have chosen it as a base for their family. Ensuring that younger generations are prepared to take leadership roles in family wealth and see Monaco as their home will be important for continued retention of assets in the Principality.

Here sustainable investing can also play a role in that 57% of IFGI respondents are seeing sustainable investing serve as a bridge between generations. So we would encourage discussing the topic to potentially improve outcomes for both portfolio and family.

The next hundred years

The next evolution of the financial system is here.

As our Private Bank serves clients out of Europe, Middle East, Africa and Asia, I can observe, and sometimes I am privileged to join, discussions about how they are aiming to become “the” centre for sustainable finance.

Monaco has long held a prestigious place in the minds of global wealth holders. It’s part of the reason for Barclays own presence, which proudly this year stretches back over a century.

To be a leading centre in another hundred years will require more action around our significant opportunity and responsibility to be more sustainable as an industry.