ESG regulation needed as rapid growth continues,


The Bahamas needs to take steps to ensure that environmental, social, and governance (ESG) standards are regulated in The Bahamas, as ESG becomes a growing trend in the investment space, Partner at Graham Thompson Aliya Allen wrote in an article published by financial news website International Investment.

In her article, Allen quotes figures from investments organization Global Sustainable Investment Alliance of $35.3 trillion as the size of sustainable investments under management in 2020. Allen explains that ESG is “rapidly” growing in the investment industry and regulators intend to codify ESG reporting.

“The Bahamas still needs to take this step,” Allen said. “In the interim, for investment funds registered in The Bahamas, the focus will likely be on ensuring that investment funds and managers employing ESG strategies and guidelines make material disclosures to investors on their strategy, allocation and ESG evaluation methods.”

She added: “The growth of ESG investing can be attributed to a few key factors. Firstly, there is increasing awareness of the negative impacts of climate change and environmental degradation on both society and the economy. Investors are recognizing the importance of considering these issues when making investment decisions.

“Secondly, there is a growing demand for corporate accountability, particularly on issues such as executive compensation, diversity and inclusion, and human rights.

“Lastly, there is a growing body of research that suggests that companies with strong ESG practices can outperform their peers in the long run.

“As ESG investing becomes more mainstream, investors are demanding more information on companies’ ESG practices.”

Allen said the central problem with ESG reporting at the moment is there is no standardized reporting mechanism.

PricewaterhouseCoopers (PwC) Bahamas Advisory Leader Kevin Cambridge recently pointed out that Caribbean governments and businesses have to come together to decide what ESG structures should look like, as they stare down mandatory ESG reporting, as prescribed by the International Sustainability Standards Board (ISSB).

The ISSB is an arm of International Financial Reporting Standards (IFRS). The IFRS are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world. The IFRS are issued by the International Accounting Standards Board (IASB).

At the Institute of Chartered Accountants of the Caribbean’s recent 40th Annual Conference, Cambridge was part of a panel discussion on the “Expectations for ESG”, as companies grapple with what this change will mean in the future.

PwC said the ISSB published its first two finalized standards. The first governs general requirements for disclosure of sustainability-related financial information, while the second deals with climate-related disclosures.

“With pronouncements handed down from the likes of IFRS, the question then is, what will now be codified in local regulations? The answer is that we need to come together,” said Cambridge.

“Individually we – governments and businesses – are looking at the world through the lens of our own country – The Bahamas, Barbados, Jamaica, Trinidad, etc.

“It’s not as impactful to think individually when you sit across the table and have very targeted regulatory discussions that ultimately impact all of us across the Caribbean and the globe.”

“The ISSB is developing – in the public interest – standards that will result in a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets,” the IFRS website states.

“Sustainability factors are becoming a mainstream part of investment decision-making. There are increasing calls for companies to provide high-quality, globally comparable information on sustainability-related risks and opportunities, as indicated by feedback from many consultations with market participants.”

Allen said with The Bahamas’ unique position as a sink for tons of carbon, there is an opportunity for the country to facilitate environmental impact investing, while continuing to fight for climate change justice.

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