PAGET BR OWN
GREEN ABOUT GREEN? BY VANESSA ROSE
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SG (Environmental, Social, Governance) investing is one of the fastest-growing investment themes on the global corporate agenda with 77 per cent of institutional investors considering ESG factors “an integral part of sound investing.” Between 2015 and 2020, ethical investing – to the extent that it can be tracked - grew tenfold. Morningstar reports that ethical ESG focused investors invested USD51 billion in ethical funds in 2020, vastly increased compared to USD5 billion in 2015. The investment world’s attitude is evolving from a negative screening approach to positive screening where investors are looking for funds with a robust ESG framework that promotes a proactive approach to making value investments that fuel the green transition and support sustainable economic models, rather than considering funds which seek only to avoid industries with unethical practices to be satisfactory for investment. This, we see, makes having ESG a critical growth factor for companies.
HOW TO IN THE PE ENVIRONMENT
In reflection of the growing focus on ESG investing, the Cayman Islands government is now working on a legislative framework to implement ESG criteria across its financial services industry. As the jurisdiction is home to a significant number of private equity funds, the impact of ESG considerations on these structures is a crucial consideration. Diverse groups of stakeholders, spanning investors to employees, consider the adoption and implementation of formal ESG policies the norm. In the private equity environment, responsibility for the creation, adoption, implementation, and ongoing evaluation of an ESG policy lies with the general partner. This can be challenging for general partners as there is currently limited guidance on what these policies should incorporate to ensure they adhere to effectiveness expectations while avoiding accusations of greenwashing. Further challenges come with the very specific investment nature of private equity investments, eliminating the ability to use
CAYMAN ISLANDS IN FOCUS | MARCH 2022
a ‘one size fits all’ policy and a check-box approach to compliance. There is also an expectation that investor communications, the PPM and LPA, as well as management company websites, will include information on the ESG policy. A recent survey by PwC noted the largest gaps between concern and action occurring in topics such as emerging technologies, future of work and automation and net zero – all critical in a post-pandemic environment. Meanwhile, regulated issues such as bribery and corruption, and occupational health and safety have relatively small gaps. General partners need to consider policies that will address these gaps and the perception of them. • In the EU, the Sustainable Finance Disclosure Regulation, phase 1 March 2021, requires compliance with high level disclosure requirements. •
Sustainability risks: ESG events or conditions, such as climate change, that could impact the value of an investment.
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