The Cayman Islands government has announced that it is working on a legislative framework for the implementation of environmental, social and governance (ESG) criteria for the Cayman Islands' financial services industry. Although in the early stages, Lashonda Powell, policy advisor in the Ministry of Financial Services, has indicated that the planned ESG policies will look to target greenwashing, with policy consultation to commence next year. The Cayman Islands is well placed to make a contribution to anti-green washing protection in the investment funds industry due to its sizeable investment funds sector.
One of the challenges of developing such a framework is to balance the high level of inconsistency in approaches taken among jurisdictions globally. Asset managers managing Cayman Islands regulated investment funds (Cayman Funds) may themselves be subject to sustainability-related disclosure regimes in their home jurisdiction. Additionally, Cayman Funds marketed into the European Union will have certain obligations under the EU Sustainable Finance Disclosure Regulation.(1) Various countries have developed taxonomies to define what is green or environmentally sustainable, and they are not all aligned, as technical standards can reflect development and policy gaps between countries.
In November 2021, the International Organization of Securities Commissions (IOSCO) released a report titled "Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management",(2) which encourages jurisdictions to consider how the "common global baseline of standards might be adopted, applied, or otherwise utilised . . . in a way that promotes consistent and comparable sustainability disclosures across jurisdictions".(3)
The ISOCO report defines "greenwashing" as "the practice of misrepresenting sustainability-related practices or the sustainability-related features of investment products". It highlights some of the key areas at the fund level where greenwashing can occur – namely:
- the name of the fund;
- how the fund is marketed;
- the failure to adhere to sustainability-related objectives and/or strategies;
- misleading claims about the product's sustainability-related performance and results and possible sustainability outcomes; and
- lack of disclosure.
The development of anti-greenwashing regulation for the financial sector has been a key theme in recent years. Even those Cayman Funds which are not yet impacted by regulation would do well to assess their sustainability-related representations and warranties due to the potential for claims of misrepresentation.
For further information on this topic please contact Kate Hodson at Ogier's Hong Kong office by telephone (+852 3656 6000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.
(1) Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.
(2) FR08/21 Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management.