Environmental, Social and Governance (ESG)
Introduction
The Isle of Man is committed to achieving carbon neutrality by 2050. It will be a complex journey to achieve that goal, with the transition having significant impacts for households and businesses, as well as for the Isle of Man economy as a whole.
Further information on the Isle of Man Government’s action plan for reaching carbon neutrality is available at netzero.im
Financial services firms have an important role to play in helping to achieve an orderly transition. At the same time, the Island’s financial services system must be resilient in order to serve the needs of businesses and consumers during the move towards a carbon neutral future.
The Authority recognises the challenges posed by climate change to its regulatory objectives of protecting consumers, reducing financial crime and maintaining confidence in the financial services sector. We also understand that managing climate and environmental risks through regulation and supervision can play a part in influencing financial behaviour to support a low carbon economy.
The Authority’s work on climate change is part of its wider focus on Environmental, Social and Governance (“ESG”) issues. We are committed to working with all of our stakeholders to contribute to the change process.
Roadmap
The Authority is developing a roadmap to set out how it will integrate climate-related and environmental risks into its supervision, and address specific areas through guidance or regulations. The Authority has established an internal working group to help move this work forward.
Examples of the key high-level components of such a roadmap are explained below:
Working with regulated firms
A key priority for the Authority is to understand how climate-related and environmental risks could manifest themselves in firms we regulate, with particular reference to our regulatory objectives, and in the context of our wider approach to risk-based supervision.
As part of the Authority’s early strategy development, we have started to liaise with a cohort of larger firms, particularly those in the banking and insurance sectors, to better understand how climate and environmental risks feature in their thinking.
Common themes that have emerged so far include a focus on financial, reputational and regulatory risks, and the importance of culture.
Firms have also highlighted opportunities in areas such as sustainable investments and finance.
The Authority encourages firms to review their business models to understand any material climate-related and environmental risks that they may be directly or indirectly exposed to, and to consider what action they could take to mitigate any risks.
By way of background, studies have estimated that 70% of CO2 emissions are driven by consumer behaviour. Banks and financial institutions can be key enablers in fighting climate change because they see and process all our transactions. This provides them with a wealth of information about consumption patterns and preferences and they are well placed to support, encourage and accelerate the Island’s transition to a lower carbon economy. Large parts of our finance sector also operate internationally, so the positive impact they can have can extend well beyond our own shores.
Our supporting role
In addition to our direct supervisory work, the Authority also contributes to developments in wider initiatives such as sustainable finance/green financing. Such initiatives could impact the Authority from a policy and regulation perspective, whether they are domestic or internationally focused. Examples of possible areas that may be explored further by Government or industry sectors include:
- Defining green investments – noting that defining ESG investing more generally remains work in progress.
- Climate risk-related reporting – noting the work already undertaken by the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (TCFD), and accounting standard setters.
- Kite mark accreditation – noting this may be wider than financial services.
The Authority has access to, and engages with, various international regulatory bodies to develop awareness, understanding and capabilities on how to respond to climate-related risks.
Network for Greening the Financial System (NGFS)
The Authority is a member of the NGFS, a network of central banks and supervisors who share best practices and contribute to the development of environment and climate risk management in the financial sector. The NGFS also supports the mobilisation of finance to support the transition toward a sustainable economy.
Information about the NGFS is available here.
Sustainable Insurance Forum (SIF) and International Association of Insurance Supervisors (IAIS)
The Authority is part of the SIF, a network of leading insurance supervisors and regulators seeking to strengthen their understanding of, and responses to, sustainability issues for the business of insurance. It is a global platform for knowledge sharing, research and collective action. The Authority contributes to ongoing work streams of the SIF and learns from the expertise within the network to develop its understanding of sustainability within the insurance sector.
Information about the SIF is available here.
The International Association of Insurance Supervisors (IAIS)
The Authority is also a member of IAIS, the global standard-setting body responsible for developing and assisting in the implementation of principles, standards and guidance as well as supporting material for the supervision of the insurance sector. The IAIS works closely with a number of partners, most notably the SIF, in addressing the risks and opportunities from climate change.
Information about the IAIS is available here.
International Organisation of Securities Commissions (IOSCO)
The Authority is a member of IOSCO, which in October 2018 established its Sustainable Finance Network (SFN). The SFN provides a forum for members to exchange experiences, and gain a better understanding of, various sustainable finance issues. The SFN also acts as a vehicle for carrying out collaborative work on common regulatory and supervisory issues and acts as the IOSCO central point for dialogue and exchange of views with other bodies in this area.
Information about IOSCO is available here
Basel Committee on Banking Supervision (BCBS) and the Financial Stability Institute (FSI)
The BCBS is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters. Membership of the BCBS is restricted but the BCBS consults with non-members when developing policy.
Information about the BCBS is available here
Being socially responsible and a good corporate citizen are important to the Authority and its employees.
Duties under the Climate Change Act 2021
As a public body and statutory board, the Authority has certain Climate Change Duties, under the Climate Change Act 2021. In summary, these are requirements for how public bodies must undertake their functions to best support the Isle of Man in moving towards a low emissions society. The Authority is classified as a “Category B” public body for this purpose, being a public body with fewer than 150 FTE staff.
A Sustainable Authority
In addition to its legal obligations the Authority has, more generally, set out to make a positive contribution to the Island community and the wider environment by:
- Establishing a dedicated environment team to help steer the Authority to be greener in its own operations
- Being a UNESCO Biosphere Isle of Man partner
- Recycling paper, cardboard plastic, cans, glass and milk cartons
- Litter picking – the Authority has formally ‘adopted’ nearby streets in partnership with Plastic Busters
- Running a library to read–reuse–recycle
- Holding and attending virtual meetings where appropriate instead of travelling
- Supporting the Isle of Man Government’s Cycle to Work Scheme to promote active travel
As part of our wider ESG initiatives, every year our staff raise money for a local charity. The nominated Charity of the Year for 2023 is the Family Library, while previous fundraising efforts have supported Isle Listen and Remember Me.
News and updates
The Authority continues to assess its response to climate change and will provide updates on developments, papers and articles that it publishes.