Soffia Alarcón-Díaz, LATAM’s Director of Sustainable Finance at IHS Markit led a panel of experts from across the region to include Mexico, Argentina, Colombia and Chile to discuss the advantages, evolution and challenges faced by both investors and companies when analyzing, collecting and managing ESG data across LATAM. This was the first in a series of virtual webinars to learn about trends in LATAM on ESG reporting and metrics.
Key takeaways from the session included:
- The growing trend in ESG reports is driven by companies and investors. The evolution of ESG reports stems from mainly two fronts: a demand by investors to internalize social risks and corporate governance, as well as companies that have begun to understand that ESG information should be considered as material because of its potential impact on the business model – and thus affect the operational and financial performance of the company.Alba Aguilar, Technical Secretary of the Green Finance Advisory Council (Mexico) stated: “In Mexico, since 2015, we began to see that institutional investors began to demand more ESG information. This was key to promote the issue of sustainability of companies and to transform business models. Towards the future, the investors’ drive and the constant demand for better ESG performance data will stimulate the entire investment chain to change.”Alejandra Cámara, Director of Genesis (Argentina), added: “Argentina, as a country that exports raw materials, began to incorporate ESG factors mainly driven by two external needs: The demand from international clients to comply with certain local standards and, internal mandates from multinationals with international headquarters for local companies to start reporting. “
- ESG reports should be viewed as management tools, rather than reporting tools. Overall, more and more companies are aligning their ESG reports with investor requirements. However, there is still a large gap between demand, i.e. what investors request in the ESG reports and the offer, i.e. what companies include in their ESG reports.Eduardo Atehortua, Head of Latam (ex-Brazil), Principles for Responsible Investment said that in general, sustainability reports lack two elements to achieve being management instruments: “First, the historical data or performance indicators (KPIs) need to be consistent over time. For an investor, it is essential to be able to see the history of the information. The second is goal setting. The investor wants to understand how this company is going to manage ESG factors in the short, medium and long terms”.Cristián Mosella, Executive Director of EnergyLab (Chile) added: “we have to see the ESG reports as management tools for both companies and investors. In this way, it will be possible to start adequately filtering the materiality and the most relevant information for decision-making”.
- Data standardization is relevant by sector to achieve comparability. Even though there are recognized reporting standards, ESG reports should contain the characteristics of the sector to make them more robust.Patricia Narváez, Technical Secretary for Sustainability, Association of Banks of Mexico explained how the Sustainability Protocol emerged in 2016 as “a union effort to articulate visions, aspirations and actions that some of the banks were doing in favor of sustainability”.Soffia Alarcon-Diaz mentioned that the ESG Repository from IHS Markit hosts 16 standards / programs which facilitates the visualization of ASG metrics and, therefore, the comparability of ASG information between sectors.
- Lack of maturity in the management of ESG aspects in the long term is not limited to large companies. Both the public sector and SMEs face challenges in managing their environmental and social risks as well. As a result, these organizations are often vulnerable to changes in the environment since their planning is short term in nature.Carlos Viesca, Rinters (Mexico) explained how in Mexico “there has been an effect of multinational companies that integrate small and medium companies in their supply chains. These large companies become, to a certain extent, a stakeholder that demands certain standards of sustainability. Faced with a crisis such as the pandemic, in the short term, these small companies have practically no adaptability, lack operating continuity protocols and have no financial reserves.
- The Environmental factors have been the primary focus, but social and environmental impact criteria are gaining importance. So far, much of the ESG analysis has focused on environmental metrics as being a differentiator because they can result in savings and efficiencies. Meanwhile, the importance of social aspects is slowly gaining importance as economic, health and political crises affect LATAM.Aldo Cerda, General Manager of SCX, Bolsa de Clima de Santiago (Chile) stated: “In Chile there has been a very positive evolution of environmental aspects that in general has been easier to incorporate by the largest companies but there is still a gap is in the social variable. This was evident with the 2019 social outbreak and more recently with the COVID19. ”
- The COVID19 pandemic teaches us about the importance of adaptation to change. All the participants agreed that the environment is changing and the inclusion of ESG aspects will allow us to adapt effectively to the change. Financial analysis is changing and the ability of companies to adjust to these impacts will be reflected in ESG considerations. It will be those companies with robust ESG strategies that will recover first.
If you want to access the full recording of the webinar you can access the following link.
For more information on IHS Markit’s ESG Reporting Repository, a one-stop, online platform for the collection, storage and dissemination of corporate ESG data, visit our website. To request a demo of the Repository, contact us at ESGreportingrepository@ihsmarkit.com.
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