Leading the way in sustainable finance implementation

Episode Transcript:

Rosie (00:00)
Hello and welcome to the latest sustainable finance, Guernsey podcast, which is rated one of the top 10 most useful sustainable finance podcasts by green finance guide. Guernsey is one of the jurisdictions leading the way in green and sustainable finance. And as part of this podcast series, we speak to and learn from some of the leading global figures in the field.

My name is Rosie Allsopp. I'm Communications Director at Guernsey Finance. We are the promotional agency for Guernsey's finance industry. And today we're bringing you a really special edition of the podcast. Guernsey was honoured to receive a visit from their Majesties King Charles III and Queen Camilla. And as part of their visits, the King met with representatives from Guernsey's specialist financial services sector.

and organisations that use Guernsey and its expert service providers as a domicile for funds under the Guernsey Green Fund designation. That's the world's first regulated fund regime. And that was at an event organised by Guernsey Finance. So today I am absolutely thrilled to be speaking with a titan of sustainable finance, Michael Bonte -Freidheim, who is founding partner and CEO of Next Energy Group, and Ben Morgan, a partner at Carry Olsen.

and they both met the King as part of that visit. So to tell you a little bit about NextEnergy, NextEnergy Group was founded in 2007 with the mission of generating a more sustainable future by leading the transition to clean energy. The group's an ardent supporter of the Terra Carta under the Sustainable Markets Initiative. It's raised five investment funds and it currently manages around four billion in the solar sector. Its flagship fund, NextEnergy Solar Fund Limited, was established in Guernsey in 2014

to accelerate the growth of the solar sector in the UK. The fund is an accredited Guernsey Green Fund, a constituent of the FTSE 250 index on the London Stock Exchange and owns 100 solar plants across the UK, powering the equivalent of more than 300 ,000 homes yearly. Ben, who's a partner at Carry Olsen, is head of the funds group in Guernsey and has a significant experience advising a variety of private and public funds.

Ben advises on the formation of all types of funds, including hedge funds, debt funds, property funds, and private equity funds, as well as downstream banking and finance transactions. So welcome sincerely to you both, Michael and Ben. It is wonderful to have you with us. Can we start by asking for your reflections and Michael, can I start with you please?

Michael Bonte-Friedheim (02:31)
Hello, Rosie. Thanks for having me with you today. So visit by His Majesty was particularly special. Sustainability is a particular interest of his and has been over the past 40 years. He's very knowledgeable and shared his views and suggestions how to expand impact with us attendees. was great to experience his level of interest in our activities and how Guernsey contributes to this.

Rosie (02:58)
Fantastic. And Ben, how about you?

Ben Morgan (03:02)
What an extraordinary coup for Guernsey. Bravo Guernsey Finance. was an amazing opportunity to showcase the finance industry. And as for the King, well he simply lit up the room from the moment he entered. He exuded warmth and given the focus of our meeting with the King was to discuss Guernsey's outsized contribution to inward investment in sustainable assets. Well it's very much his bag isn't it? He was so engaged and interested in Guernsey's offering. It was great.

Rosie (03:32)
It really truly was. Now, I'd to ask you both, what sort of impact do you think the King's knowledge and experience in this area has in making a difference in leveraging change? And Michael, I'll start with you if that's okay.

Michael Bonte-Friedheim (03:49)
Absolutely. his vision and his interest in the sector is constantly spurning a broader realisation of the importance of what sustainability means across our world.

And as a figurehead for that movement, he contributes to everything we do by being in the market, by being, of course, such an important figure driving what we are trying to achieve at the ground level. He really expands our reach, the way people listen to what we do, and then how we can affect change at the ground level.

Rosie (04:29)
Ben, would you agree with that?

Ben Morgan (04:32)
Yeah, no, gosh. I'm what a, I shouldn't say mascot, should I? But it was what a star to have in an industry like this. It's some sort of magic dust, isn't it, for the industry?

Rosie (04:47)
I couldn't agree more. moving away from the visit, Michael, tell me, why did you decide to found Next Energy Group? And maybe tell me a little bit about what you were doing before you did that.

Michael Bonte-Friedheim (05:00)
Absolutely. So before I founded NextEnergy Group in early 2007, I had been working in the European power and energy industry for about the previous 12 years on the investment banking side. Lastly, I was a managing director at Goldman Sachs in their European investment banking department covering European energy and power companies. And so I had spent those previous 10 or more years focusing on the industry, understanding the breadth of that industry across geographies, across the entire energy value chain. And my objective was very much to follow in the footsteps of my father, who had worked at the United Nations for over 20 years in finding a business area that can affect significant positive change in what we do day to day. And so the combination of working in the European energy and power sector with that expertise and that underlying drive to affect positive change led me to establish the group and develop it into what it is today.

Rosie (06:12)
That's so interesting. Tell me what are some of the conditions that are enabling growth in solar energy across next energy investments in the UK?

Michael Bonte-Friedheim (06:23)
So the key drivers enabling growth and accelerated deployment of new solar in particular in the UK but also further afield include that it is the lowest cost power source today. It contributes to therefore lowering power and energy prices for consumers across the geographies where it is deployed more.

It increases energy independence and also decarbonizes the power generation sector. Now power generation sector is a very large source of carbon emissions. So reducing decarbonizing that sector contributes of course to mitigating effects that that sector has on climate change.

But there are other drivers as well, including that we have a positive impact on biodiversity, on agriculture, and local communities. So all of those things flowing together really are driving the deployment and the rapid deployment of new -build solar across the UK and many other countries as well.

Rosie (07:28)
Thank you and let's bring Ben in at this point. Ben, how do Guernsey Fund structures support international capital flows into sustainable portfolios, particularly in the UK?

Ben Morgan (07:40)
The Guernsey is home to some of the world's biggest funds and can count some of the most successful fund managers. Like NextEnergy as its clients. Investment in Guernsey funds is from all over the world. It's from Europe, America, Asia and the Middle East. And investments by those funds are similarly global. One of the growing sectors is investment by Guernsey structures into natural capital and green investments.

Guernsey's finance industry and the City of London work hand in hand. It's very much a symbiotic relationship. Guernsey's nexus with the UK means that a chunk of the infrastructure assets in this sector will be assets located therefore in the UK.

Rosie (08:29)
Absolutely. So NextEnergy Solar Fund celebrated its 10th anniversary this year. Michael, can you tell me how the markets evolved in that time? And maybe do you have a favourite or a memorable moment, you know, from that 10 year period that you could talk about?

Michael Bonte-Friedheim (08:49)
Absolutely. So if we look back into the early 2000s and 2010s, solar energy was part of renewable energy, which was pursued or considered as a kind of alternative energy source. So the market was tiny. Stakeholders, be that investors, be that regulators, be that landowners, were very unfamiliar with that sector. And so if you look from when we listed 2014 when the projects that we built and that we acquired for the fund were exclusively based on some type of government support, subsidies, renewable obligation certificates and so on to where the sector is today, it has been a dramatic change. Today we can build solar projects in the UK and across other geographies without any form of government support or subsidy or any other support mechanisms. That's a radical change. And the key driver in that has been the industrialisation of the solar sector, where the cost of building solar projects has come down so dramatically that as I was saying earlier, today it's the cheapest form of power generation. And so really, since we launched NextEnergy Solar Fund till today, we've seen the most radical change in the solar sector. So as pertains to the second part of your question around the memorable moments in the IPO. There really are 10 years. You can imagine too many to mention or in a short podcast like this one. But so I think one of the most memorable moments for all of us in our team was how difficult it was to get that IPO away, to list NESF in that year. And we experienced inside energy turning that potential failure which was very close to failure into a fantastic success and that was a huge achievement. In the early years moments certainly were around that NESF was the the fastest growing investment trust ever and so of course as a memorable process of growth by issuing more capital and growing so quickly, certainly those were memorable moments. I think another one is certainly around something you mentioned earlier, which is NextEnergy Solar Fund reaching 100 plants is a great benchmark to have achieved a great milestone and another memorable moment. And of course, we're expecting to have many more memorable moments for NextEnergy Solar over the next many years.

Rosie (11:41)
I look forward to seeing the changes that come in the next 10 years. Ben, I understand that Carey's was established in 1898, so I won't be asking you that question. I'm pretty sure you were not around then, but you are celebrating 25 years at Carey Olsen this year. Many congratulations. How has the demand for sustainable investments changed during that time?

Ben Morgan (12:05)
So when I joined 25 years Carey Olson acted for approximately one third of all funds domiciled in Guernsey. Today it has over 80 % of a much larger 300 billion pound investment market. And by dint of that market share, a large and growing proportion of the assets in client funds will be sustainable investments.

Recent climate change has accelerated the investment in this sector. And it's just hugely rewarding to find yourself involved in a sector like this, making a change, making a big change, hopefully to the lives of those that benefit from clean energy funds, from green funds. And it again, has stepped up, right? So it's introduced the Guernsey Green Fund regime and then following that, Natural Capital Fund regime and it will continue to innovate and I think that's going to be exciting. Hopefully the next 25 years, if I'm still around in 25 years time, will be just as exciting.

Rosie (13:10)
I can't wait to see what happens really. So Michael, when we spoke to your colleague, Ross Grier, who is Chief Operating Officer for NextEnergy Capital back in 2023, the fund had invested in 350 solar plants and that number is now 461, which is a remarkable expansion in that timeframe. Can you talk us through how and where you've expanded?

Michael Bonte-Friedheim (13:37)
Absolutely. So starting in 2014 with the launch of NESF and the funds that came after that, we have been really successful in leveraging the outstanding results that we've already mentioned about in NSEF, but also in our other funds into raising new funds, raising ever more capital.

And so since launching NESF, we have launched four other funds. We've expanded our investment activities into a broad set of additional countries like Spain, Portugal, India, Poland, Greece, Chile, and the US.

And as we entered into those new markets with those increased pockets of capital that institutional investors allocated to us, we have been able to increase the number of assets, those portfolios very significantly. And really, the challenge at the time was taking an extremely successful business model, which we had proven in Italy and the UK with NSEF into those new markets and getting investors to understand and to accept and to back us in that transfer of expertise into those new markets. And so that expansion of our activities, starting with Next Energy Solar Fund in 2014, is really the key underlying driver for that exponential growth that we've seen to date. And the reality is we're raising capital for two funds at present.

And so you should expect to see us increasing the number of assets, the number of megawatts, the number of countries that we're active in over the next years as well.

Rosie (15:25)
Certainly look out for that. So this year, Guernsey Finance commissioned the Research House Frontier Economics to conduct research into the value of Guernsey's financial services industry to the UK's economy. Now, this demonstrated the scale and breadth of the NextEnergy Solar Fund within the UK. Outside of shareholder returns, what value do you think those solar assets have for the local community? And what sort of social impact, if any, do you think those assets have on the local communities? Michael, sorry, Michael. Thank you.

Michael Bonte-Friedheim (16:00)
Absolutely. So everything we do from looking at the first opportunity to build new solar projects on land and then working from then on to all the approval processes and getting the assets built, we focus on integrating our activities within the local communities that we're active in. So the way we view the benefits of solar beyond those benefits that I mentioned earlier, in terms of direct impact for local communities, the impacts include creating local jobs and upskilling workers to take advantage of the huge opportunity in this high-growth sector, which then they can transfer to others and to other opportunities across the sector. We also spend a lot of time and effort in funding local education and social programs.

Other benefits are increasing the local biodiversity beyond, again, creating those local jobs and that educational effort. And so what we find is that the local communities are highly appreciative and highly welcoming of new solar power plants because of those broader set of benefits. And of course, by including educational opportunities around renewable energy, around those sites. You we take school children on site visits, we have little kind of structures, houses that we build next to the sites where there are all kinds of educational content for school children to learn about the sector. You really raise awareness of some of the main challenges of our time around climate change, around what we can do to mitigate the effects of climate change or reduce the impact of climate change in those individual communities. So broad-based benefits that we find are driving that positive reaction to the solar sector.

Rosie (18:07)
That's really great to hear and that sort of community integration is so important, isn't it? Because you're there forever and everybody has to kind of get along. So that is absolutely vital. Ben, the report notes that Guernsey provides 57 billion in foreign direct investment into the UK through Guernsey -based funds. How important do you see this as going forward? And do you think it might increase over time?

Ben Morgan (18:34)
So the figure of 57 billion pounds of foreign direct investment is a large amount. But I actually think the real amount in terms of investment into the UK from Guernsey is going to be much, much bigger if you add into that the non -Guernsey fund structures and other parts of Guernsey's thriving financial services sectors.

And a big slice of that inward investment will go into green, clean tech and natural capital assets. Meanwhile, foreign investment into the UK has been the lowest of the G7 countries. I think for 23 of the last 30 years, the same is cannot that can really not be said of Guernsey structures where UK assets.

invested in by Guernsey has been growing, it's grown at a rate of I think 14 % every year since 2020. Guernsey therefore is really key to the UK and that symbiotic relationship I referred to earlier is, well, so important to the UK and hopefully will be recognised as being critical by the UK's new government.

Rosie (19:34)
That's right.

I couldn't agree more. I have to say that somebody from Off Island, who I was speaking with about this recently referred to Guernsey as small but mighty, which I absolutely love that description. So another exciting development for NextEnergy Capital in recent years has been the development of Starlight. Michael, can you tell us a little bit about this venture and what you hope it might achieve?

Michael Bonte-Friedheim (20:18)
Absolutely. So Starlight is our in -house asset developer. It's the unit and team that finds projects and develops them either on Greenfield or Brownfield sites. And Starlight comes out of our history of developing projects. So when I started the company in 2007, we actually started off as a local developer of projects down in Italy at the time. And then as you know, we expanded to the UK. But

refocusing on starlight and empowering starlight is really the result of our realisation that to accelerate the transition to clean energy and a more sustainable future, which is our mission, requires a larger, a quicker and faster. Can I start that again, please?

Rosie (21:11)
Of course you can. Yeah. Do you want me to ask the question again? Sure. So another exciting development for NextEnergy Capital in recent years has been the development of Starlight. Michael, can you tell us a bit about this venture and what you hope it might achieve?

Michael Bonte-Friedheim (21:14)
Please.

Absolutely. So Starlight is our in -house asset developer that basically takes green and brownfield project opportunities all the way to the ready to build status. And it really is based on

the way we started our company back in 2007 as a developer of projects in Italy at the time, and then we expanded to the UK as we mentioned earlier. So starlight and driving starlight over the last couple of years is a result of our realisation that to accelerate the transition to clean energy and a more sustainable future, which is our mission, more and faster project development is fundamental.

So with our skill set, our team and market knowledge, it was a clear strategic opportunity and imperative to expand.

those project development activities across the UAE, the UK, and other geographies. So today we have some 10 gigawatts of projects under development across multiple countries, and we're looking to double that size over the next four to five years. So a key part of everything we do and a key part of pursuing that mission that we've set ourselves at the outset when we founded NextEnergy back in 2007.

Rosie (22:52)
Sounds really, really exciting. And yeah, we'll just have to keep watching this space, won't Thank you both so much for your time and insights today. It has been an absolute pleasure having you both on the podcast. It's been so interesting hearing your thoughts and we look forward to hearing more about what comes out in the next few years. I'd also like to say thank you for you for listening. We have quite a back catalog of interviews and panel discussions on the Sustainable Finance Guernsey Podcast channel.

And you can check them out by searching for sustainable finance Guernsey, wherever you get your podcasts. If you enjoyed today's episode, please leave us a review or a comment. We'd love to get your feedback and we'll be back soon with another episode of the sustainable finance Guernsey podcast.