By Rachael Pape
It is impossible to consider future trends and developments in project financing and investment today without looking to the challenges created by climate change. “Green investing” is reshaping conversations and investment priorities. In recent years the allocation of capital to greener purposes has grown rapidly with institutional investors and regulators across the globe increasingly focusing on environmental, social and governance (ESG) issues in terms of investment portfolio composition, corporate best practices and corporate disclosure requirements. British Virgin Islands (BVI) companies provide a flexible yet internationally recognised corporate regime to facilitate ESG investment.
Green project finance and green bonds
Active asset managers and financial investors have shown a significant shift towards ESG issues in recent years with a clear trend in favour of ESG growth, particularly in Europe. Investors and fund managers are increasingly waking up to the fact that finance and investment can either harm environmental outcomes or help them, and it is important therefore that such investments are approached in a conscientious and intelligent manner.
The term “green project finance” or “GPF” refers to any structured financial activity that is created to ensure a better environmental outcome. This includes loans, debt mechanisms and investments that encourage new project developments which limit harm to the planet. GPF offers the chance to make a positive difference to the climate conversation, whilst delivering a return for investors.
Developments such as “green bonds” are also gaining increasing traction to tap into this growing demand and provide investors with exposure to green assets. Green bonds now account for 8-10 per cent of global bond issuances. According to the Climate Bonds Initiative, 2021 was a record year for green bond issuances with the market for such products reaching US$350 billion. The proceeds from such bond issuances are used to fund eligible green projects complying with guidelines such as the “Green Bond Principles”, which are voluntary guidelines published by the International Capital Markets Association that promote climate change mitigation, low carbon society and the achievement of the UN’s Sustainable Development Goals.
Use of BVI companies in green financing structures
Finding an appropriate way to structure GPF deals across jurisdictions can be problematic. Typically investors will be located in multiple jurisdictions and will be looking to come together to find a neutral platform to enable them to invest. The British Virgin Islands offers fund managers the ability to establish tailored, flexible and low-cost vehicles to meet clients’ specific investment requirements.
BVI companies provide issuers with a tax-neutral, flexible and low-cost vehicle, which can be tailored to meet the specific requirements of the proposed transaction while being internationally recognised and listed on exchanges around the world including New York, London and Hong Kong.
Some of the key features of BVI entities which may be of relevance to issuers of green bonds and other GPF products and in structuring ESG funds include:
Flexible corporate regime
There are no restrictions under BVI law on the objects of a BVI company, which can be unlimited or, in the case of a restricted purpose company, as specified in the memorandum of association of the company. The BVI Business Companies Act allows significant flexibility in how BVI companies are structured in terms of capital structure, management roles and required levels of shareholder involvement.
There are also no financial assistance restrictions or guarantee limitations applicable to BVI companies, with BVI companies having clear statutory power and capacity to grant guarantees regardless of corporate benefit.
No disclosure restrictions
BVI law imposes no specific disclosure requirements or restrictions on BVI companies in terms of offering documents. BVI companies are therefore free to tailor their disclosures to follow market practice and guidance, including with respect to ESG reporting.
Low cost and reduced administrative burden
Directors of BVI companies have wide discretion and management powers to carry on the business and affairs of the company, subject to their fiduciary duties to the company and its shareholders and the memorandum and articles of association of the company.
BVI companies are also low-cost and efficient vehicles, allowing invested funds to be directed to the intended green projects with minimal wastage. In particular:
- BVI companies are subject to low annual maintenance costs, with the annual government fees in respect of companies authorised to issue up to 50,000 shares currently being only US$450 per year.
- There is no income, VAT or other tax of the BVI imposed on BVI companies by withholding or otherwise. In addition BVI companies are not subject to stamp duty in the BVI and no registration, documentary, recording, transfer or other similar tax, fee or charge is payable in the BVI in connection with the execution, delivery, filing, registration or performance of transaction documents (other than filing fees in respect of the public registration of security).
- For BVI companies not specifically regulated by the BVI Financial Services Commission, there are no annual audit or public financial statement requirements in the BVI, limiting the administrative burden on the company (although simple financial statements will shortly be required to be provided to a BVI company’s registered agent, however such financial statements will not be pubicly filed or otherwise made publicly available).
Bank accounts and exchange controls
There is no requirement for a BVI company to hold its bank account(s) in the BVI, and therefore accounts may be opened in the jurisdictions where the proposed green projects and/or the investors are based. There is no exchange control legislation under British Virgin Islands law.
Future trends and developments
The flexibility and agility of the British Virgin Islands corporate regime, together with its international recognition, is a key benefit for structures looking to facilitate sustainable investment. The BVI is well-placed to assist investors and companies with all stages of the investment process. We anticipate that BVI companies and partnerships will continue to be at the forefront of the development of novel features and structures to facilitate sustainable investment with a wide global footprint.
As the green revolution marches on, however, investors and fund managers should be aware of possible investor blind spots. For example, currently there is no globally accepted reporting mechanism for ESG investments which presents a significant risk if a fund is exaggerating its ESG credentials.
We are here to help
GPF and ESG structures often employ novel structures and skilled legal counsel is vital throughout the process. Conyers is active in giving legal advice on the most appropriate capital structures and governance issues with our consistently top-ranked corporate, finance and dispute resolution BVI legal practices. Established in 1996, Conyers Dill & Pearman was the first international law firm in the British Virgin Islands, and as an acknowledged market leader, we are well placed to provide you with all the legal advice and services you need in the BVI. In addition, Conyers’ BVI-based legal team work alongside our affiliated corporate services provider to provide seamless company incorporation and management services. Conyers Corporate Services was established in the British Virgin Islands in 1988 and has been at the heart of the jurisdiction’s development as an international financial centre ever since; providing registered agent, registered office, corporate secretarial, director and authorised representative services to top-tier international clients and multi-national groups.
Conyers signed the Green VI Green Pledge on Earth Day 2021 (22 April 2021) and is working toward formal accreditation for our sustainability programme with Green VI, a BVI not-for-profit organisation established in 2009 to combat climate change through environmental improvements.
Tailored professional advice should be sought in respect of the individual circumstances of any proposed transaction. This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
About the Author
Rachael Pape, Counsel, has a broad corporate and finance practice with particular expertise in corporate finance and reorganisations, capital markets, derivatives and securitisations, mergers and acquisitions and investment funds, along with providing cross-border regulatory guidance. She advises a range of clients including corporations and leading international banks and financial institutions.