In 2022, the Cayman Islands Government reported that it was embarking on development of an ESG policy framework for Cayman’s financial services industry. To date, there have been no major inroads made to impose ESG reporting obligations on the financial services industry by the Government. Cayman Islands domiciled vehicles continue to have governance related obligations, but funds and other financial vehicles can — and some do — self-define ESG terms that apply to their contractual arrangements.
The Cayman Island’s Monetary Authority (CIMA) has stated on its website that as a regulator, it recognises that ESG considerations, or sustainable investing, is increasingly becoming the fastest growing investment strategy within the financial services sector, and recognised that investment funds registered in the Cayman Islands were pursuing ESG-related investment strategies. However, it stated that “regulators are required to balance establishing regulatory responses that encourage growth and innovation, while simultaneously addressing the various challenges being encountered during the transition to regulate ESG and sustainable funds in various jurisdictions.”
CIMA further stated that as “part of its supervisory mandate, the Authority will continue to undertake reviews, including assessing the available information, such as best practices undertaken in other key financial jurisdictions, with the aim of developing a suitable regulatory and supervisory approach for climate related risks and other ESG-related risks.”
The evolution of ESG in the Cayman Islands has been a conservative one. The Cayman Islands has been content to monitor international best practices with respect to ESG, and has carefully measured its reaction to global trends. It has not taken a hard line on regulating financial industry vehicles, but has deliberately maintained flexibility in its approach, recognising the unique position it holds as the world’s predominant investment funds and capital markets domicile for a broad range of financial services products.
Industry experts anticipate that the Cayman Islands Government will adopt an opt-in regulatory regime, and maintain flexibility for industry to adopt ESG best practice policies that reflect their investor expectations on reporting and monitoring. CIMA may develop a similar approach with standardised disclosure for regulated funds that elect to be subject to ESG criteria practiced in other jurisdictions. In the meantime, CIMA has chosen to focus on governance and management of regulated entities.
In parallel, the Cayman Islands private sector has continuously monitored the impact of ESG and conscious investment on the financial services sector, and has started industry-wide discussions through steering groups, which engage with clients and investors, pool their views and concerns, and suggest best practice approaches to the government and the regulator through regular engagement and dialogue. Several industry participants also believe that the current legal and regulatory framework has sufficient flexibility to allow for voluntary reporting and monitoring of ESG statements in fund documentation, particularly in relation to greenwashing, while meeting financial service vehicles’ ESG-related objectives.
The Courts of the Cayman Islands have also not made any material decisions on ESG matters to date.
In conclusion, whilst there are currently no ESG specific reporting and disclosure regulations, Cayman’s ESG acceptance is largely driven by investors rather than by regulatory mandates. New fund launches that have an ESG focus have increased, as well as green bonds in the fixed income market. Asset managers, possibly driven by investor activism, have continued to integrate ESG into their investment objectives, and Cayman Islands industry experts remain poised to adapt to this trend, continuing to monitor global best practice and have active dialogue with Cayman Islands Government through industry peer groups and direct engagement.
Proponents of ESG continue to stress the importance of implementing clear, standardised legislation, and push for decisive statements from the Cayman Islands Government and CIMA on ESG. This continued push, as well as sustained investor activism, will be the catalyst for any codified changes in the Cayman Islands approach to ESG. Asset managers are important proponents — or opponents — of ESG adaptation, and it is their discussions with Cayman Industry experts that may press the issue and force any accelerated change in the current Cayman Islands collective approach to ESG.
Winston Connolly
Winston Connolly is the Managing Partner of Chancery ESG Ltd, Cayman (CEL). CEL focuses on three pillars of the future economy: Environmental, Social and Governance (ESG), digital asset transactions and sanctions. Chancery ESG provides training to investment management teams and oversight boards who are incorporating ESG considerations in their existing business. With the support of Chancery Advisors UK, CEL can provide advice on Cayman Islands laws, related EU regulation, compliance and litigation. CEL provides tailored legal advice on legal and regulatory matters related to ESG and sustainable investing and can assist asset managers in defining their strategy and ESG policies.