The Cayman Islands government is working on a legislative framework for the implementation of environmental, social and governance (ESG) criteria for Cayman’s financial services industry.
ESG has become a hot commodity in investor circles as investors increasingly want to invest into companies that are sustainable, well run and mindful of the social environment they are operating in.
What is lacking are standardised metrics and reporting that enable investors, rating agencies, customers and the public to determine and compare the performance of companies in these areas.
The missing definitions and standards open up the threat of ‘greenwashing’ – attempts by companies to appeal to consumers and investors, who demand high ESG standards, without effectively changing their business practices and improving their environmental footprint or governance.
Lashonda Powell, policy advisor in the ministry of financial services, says government believes that Cayman should participate in creating a more sustainable world and that this can be accomplished by incorporating ESG factors into Cayman’s financial services sector.
Speaking at the Cayman Islands Institute of Certified Professional Accountants conference on Thursday, Powell said the ministry is in the early stages of policy development.
“The ministry believes that Cayman is uniquely positioned to make a contribution to the ESG space, because of our investment fund sector,” she said. “Therefore, the incorporation of ESG into our investment fund sector is an area that we are researching for policy development.”
Powell said the ministry intends to develop and implement an ESG framework with robust ESG policies that will prevent greenwashing.
To that end, the ministry has researched jurisdictions such as Guernsey and the European Union to determine how ESG criteria could be incorporated in the financial services industry.
Policy consultation will begin next year.
Eleanor Fisher, partner at EY, pointed to the United Nations Cop 26 climate change conference in Glasgow last month, a meeting of government leaders and CEOs, which also focused on continuing to build a robust ESG strategy.
A good way to start, she said, is agreeing global ESG disclosure standards that are consistent.
Fisher said, while there is demand from investors to get into funds with an ESG strategy, comparing different funds remains difficult.
“That is going to be very much and evolving area for the funds sector and it‘s great to hear that the government is focused on building ESG standards that will apply to Cayman funds.”
She said, outside of sustainability, Cayman already has a very strong governance regime for investment funds with independent directors typically providing oversight of the running of a fund.
Independent directors that bring an ESG focus to fund boards could become a growth area for Cayman, the EY partner said.
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