CIMA warns of economic risk linked to climate
(CNS): Climate change is expected to increase risks within the financial system in many ways, the Cayman Islands Monetary Authority said in a report assessing the stability of the local economy and salient trends. Local institutions face acute and chronic climate-related risks potentially causing “dire economic consequences”, CIMA warned, as the regulator seeks ways to regulate how institutions manage that risk.
In the first edition of the Cayman Islands Financial Stability Report, CIMA sought to shed light on the performance of the major sectors across the Cayman economy and examine future threats to the financial industry.
Included in the report is an assessment of the potential impact of climate change and how institutions and the regulator could tackle a warming planet and the economic consequences. All financial institutions, including banks, are exposed to climate-related risks that could affect their safety and soundness as well as have broader financial stability implications for the economy.
“Although climate-related financial risk is a complex and developing subject, there is a growing need for regulated entities to integrate climate-related risks into their business strategies and processes,” CIMA said in the new report.
While the fastest growing investment strategy within the financial services sector is based on environmental, social and governance (ESG) considerations, or sustainable investing, expectations and practices around climate risk are still evolving. CIMA said it is now shaping a suitable regulatory and supervisory approach for climate and ESG-related investing with the development of detailed climate-related scenarios and templates as well as more guidance to the industry on the related threats.
The regulator pointed out that the financial ecosystem plays an important role in two ways when dealing with climate-related economics: institutions are exposed to risk in their role of providing financing and insurance services to those directly impacted by climate change, and financial services are directly involved in the transition to investing sustainably in a low-carbon world.
“CIMA has created an internal working group to examine the regulatory work to be developed within this area,” the regulator said in the report.
As the world grapples with climate change issues, capital markets are becoming an important funding source for green or sustainability-linked bonds and loans for investments towards ‘greening’. CIMA said that climate-related risk is not a future phenomenon but is already impacting the world economy and the financial system.
“For a financial regulator, it is imperative to understand that climate change risks can affect supervised financial institutions directly and indirectly,” the report stated, pointing out the potential financial losses due to physical risk from increasing severity and frequency of extreme climate change-related weather events.
There are also financial costs associated with the adjustment to a lower-carbon and less polluted world, as some sectors of the economy will face big swings in asset values or be faced with higher costs of doing business.
CIMA warned that here in the Cayman, the effect on shoreline assets, especially financially critical resources such as the Seven Mile Beach, could be a cause for concern. “Due to the propensity of recent developments and the improper placement of structures such as dikes, pools and possibly active beach zone buildings, the beach has a limited distance to which it naturally recedes or bends, thus causing problems and erosion,” the regulator said.
In February last year, CIMA became a member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) to keep updated on the development happening around climate-related risks. The NGFS has over 100 member countries and has published recommendations for members to adopt in the implementation of climate-related measures.
See the report in the CNS Library.
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Category: Business, Climate Change, Financial Services, Politics, Private Sector Oversight, Science & Nature
#BanESG jail all involved. CIMA has no right getting involved enshrining law’s of Eco-zealots.
CIMA has no clue. Long before meaningful sea level gains, valuable residential property of the Caribbean (and wider hurricane belt) eventually becomes uninsurable, and that’s when our fortuitous Cayman Islands economic miracle draws to a conclusion, and gets reabsorbed elsewhere. How many regional storms stand between now, and that certainty? Place your bets and spin the wheel.
CIMA should be warned about the risks to our main economic pillar from not knowing the subject matter or mission Ie. exposing bad participants before the headline/watchlist events, protecting consumers from bad operators, and shielding the golden goose from envious hunters. It’s not a particularly hard job, but they still manage only partial marks.
8:50 You are correct. The bucks stops with the Board and the Minister responsible.
Have a look at the new CIMA Board. You will be concerned.
Wow. It’s a good thing this regulatory job isn’t important, right? /s
https://www.cima.ky/the-board
The regulatory burden and the way it is introduced (through enforcement not by actual regulation and guidance) is systemically wiping out small family and locally run financial service providers. CIMA does not use its own “Risk Based Approach” when enforcing regulation. Small service providers are expected to have exactly same and policies as the largest institutions. In most cases these policies are meaningless in small company (for example small company does not need extensive policy of oversight of middle management when it does not have middle management). However CIMA insists that all policies regardless how useful these are must exist and be updated annually. This is huge burden on small companies. So much time is used on red tape that it does not make financial sense to run a small services provider any more. What does this to healthy local job ecosystems? It ruins it. Small companies are generally locally owned and operated and 10 times more likely to hire locally and be interested in training and promoting their Caymanian employees. Look at any large company/ firm on Island and it’s hard to find Caymanian working there. This has even environmental consequences: all foreign professionals must move to island and it puts burden on local environment and resources. That’s why this policy is nothing but another whitewash of making Cayman and CIMA look environmentally conscious when it’s not at all.
Recent political friction and anti-ESG policies across UnitedStates have started to create headwinds for pension funds and large institutions that serve them.States havetaken actions to restrict the ability of state public pension funds to invest in companies based on their ESG performance, citing concerns about fraudulent greenwashing and potential fiduciary duty violations, referring to the obligation institutional investors have to seek the highest returns for the lowest risk possible.ESG is under pressure,a dangerous path and needs to be under heavy scrutiny.
ESG is an ever-developing Board-level de-risking tool and more relevant than ever. It doesn’t cost anything extra to diversify the thought of obsolete conservative all-white, old, male Boards to include others that can offer useful modern insight to illuminate an enterprise’s blindspots and forgo arrests (!), added litigation, regulatory, community outreach costs. Tokenism is more expensive than tailored materiality for those companies wanting to move into the future of best practice. Board appointees of US big board public companies are paid handsomely, typically over $250k->1mln a year, to know their stuff, calibrate their ideas to de-risk their appointed enterprise, and not necessarily kowtow to obsolete patriarchial ideals of what matters in Corporate America. To suggest that material ESG de-risking is under pressure, or a drag on profits, reaffirms that conservative white men don’t care to learn what ESG even stands for, or the sub-chains of concerns under each of the main headers. The same dinosaur boards that gamble on gender and race pay equity, and workplace safety.
switching to meeting quotas away from merit would only seek to add risk
What’s the worry, I thought the new bills are plastic. They won’t get soggy even if they’re laundered all day long.
Meanwhile nature gets destroyed by NPA right on their own front porch.
Hypocrisy much Cayman?
No one should be listening to CIMA
At least if CIMA are wasting their time on this they aren’t spending as much time trying to wreck local service providers.
You want to bet on that?
Maybe they should spend more time on SVB.
It’s not CIMA’s role to mansplain theoretical future investment risks to experienced international money managers. They shouldn’t be spending a millisecond on this, but who is surprised.
Experienced international managers do tend to screw up enormously and to the detriment of the public. Someone has to keep an eye on them, especially those who facilitate illicit activities yeah we got ‘em here .!!!!
Look on the bright side. Now that money is at risk, action will be taken to preserve our beaches.
Complete rubbish.