South America is a region characterized by stark contrasts. Notably, there is great disparity in the progress toward ESG regulations across the continent, so it’s difficult to make broad generalizations about the ESG regulations in the region. Nonetheless, a trend towards greater awareness of ESG issues is evident across South America, where both the risks to business continuity and the potential opportunities are coming to light. This article focuses on the key advancements some countries have achieved in corporate ESG disclosure regulations within South America, highlighting their relevance in the context of maintaining international trade and investments.
ESG regulations for business continuity
In South America, the environment is a controversial topic. On one hand, the region boasts four countries in the top ten list of the most biodiverse: Brazil, Colombia, Peru, and Ecuador. Additionally, it is home to the Amazon. On the other hand, the GDP of most countries in the region relies on the extractive sector. This reliance generates a rivalry between economies based on industries such as oil, mining, and agribusiness, and local communities and environmental activists. Numerous examples highlight this ongoing conflict, some of which are quite old but still generate controversy. One such example is the Mariana dam disaster in November 2015 in Minas Gerais, Brazil. This incident returned to the news at the end of June 2024 because lawyers representing claimants have taken legal action against miners BHP and Vale. These companies are accused of attempting to obstruct a potential lawsuit in London that could cost up to $46 billion.
Achieving balance is not easy, but South American countries with more open economies understand that they cannot be left out of the sustainability trend in business. It is absolutely necessary to create a clearer and more transparent environment to attract investors and generate trust, especially considering the path that EU countries are taking. Additionally, governments need to align with the commitments they made when signing the Paris Agreement and the UN Sustainable Development Goals (SDGs).
In this scenario, ESG regulations can be seen as a reasonable way to redirect investments, to channel efforts from governments and companies towards net-zero commitments and to avoid greenwashing and other ESG risks with financial impact. However, given the diversity of countries in terms of culture, population, GDP, social needs, inequalities, politics, economic systems, corruption and more , it’s challenging to speak about the region as a whole and visualize its path towards sustainability, particularly in relation to climate change and associated regulations.
Attracting investment and market access
According to Bloomberg1, global ESG assets are projected to surpass $40 trillion by 2030, reflecting a more mature ESG market that aligns with global regulations. The study found that most investors (85%) reported that ESG leads to better returns, resilient portfolios, and enhanced fundamental analysis. These are the primary reasons why some stock exchanges around the world are seeking alignment with ESG-related standards.
In an effort to elevate South American business requirements in line with the international landscape, and to align companies with regulations that exert extraterritorial influence, such as those for supply chains in the EU, regulators of listed companies in some South American stock exchanges are implementing guidelines and mandatory regulations. These are designed to standardize ESG disclosures, improve transparency, and facilitate benchmarking. The goal is to attract investors by reducing risk exposure to sustainability issues and seizing the most prominent opportunities.
In certain countries and more homogeneous regions like the EU, ESG regulations have started to become mandatory for public companies that are part of the most relevant exchanges, as well as for the financial sector. In the case of South America, some countries have made progress towards ESG disclosure regulations, initially with guidelines and then with laws . This is primarily the case for Brazil, Colombia, Chile, and Argentina, whose cases we will review next.
ESG standards in South America
Let’s begin by stating that there are no universal sustainability standards implemented across the entire South American region. Apart from conventional laws that can be categorized under ESG or sustainability, such as environmental laws, employee health and safety laws, and other social regulations, most of the progress made lies in ESG disclosure rules. These rules, whether mandatory or not, are shaping the market. The following points provide a summary of the key milestones and current developments in the region. The countries are listed in sequence, starting with those that, in my view, are the most advanced in terms of ESG alignment and transparency.
Brazil: one of the most advanced countries
In 2021, the National Monetary Council (CMN) mandated financial institutions to implement and disclose a policy on social, environmental, and climate responsibility. Additionally, the Brazilian Central Bank required certain financial institutions to disclose a report on social, environmental, and climate risks and opportunities.
Since 2022, the Brazilian Securities and Exchange Commission (CVM) has required publicly traded companies to disclose ESG information in their reference form. Regulators in Brazil have also been developing domestic ESG frameworks and standards. Furthermore, the Commission established a new regulatory framework for investment funds in Brazil, with the aim of combating greenwashing in the so-called ESG investment funds.
Also, during 2022, the Brazilian Association of Financial and Capital Market Institutions (ANBIMA), which acts as a voluntary self-regulatory entity, issued rules and procedures to mitigate greenwashing risks by identifying sustainable investment funds.
In July 2023, the São Paulo stock exchange (B3) published new rules for listed companies, including ESG rules. It also created a Corporate Sustainability Index (ISE B3) designed to measure the performance of companies listed on the B3, recognized for their commitment to corporate sustainability. Additionally, it has other ESG-linked indices such as the Diversity Index (IDIVERSA B3), Carbon Efficient Index (ICO2 B3), and the Great Place To Work Index (IGPTW B3).
In summary, companies listed on the B3 and Brazilian financial institutions are among the most regulated entities in terms of ESG disclosures. This places Brazil as a pioneer in ESG regulatory measures. Additionally, in October 2023, the Brazilian Ministry of Finance and the Securities and Exchange Commission announced the adoption of the International Sustainability Standards Board’s International Financial Reporting Standards (IFRS) S1 and S2 within the country’s regulatory framework. With this step, Brazil became the first country in South America to undertake such an integration.
Colombia: a proactive participant
The journey began with the launch of the Guide for the Preparation of ESG Reports for Issuers in Colombia in July 2020. This guide served as a tool to encourage the disclosure of sustainability reports in alignment with international standards and was a collaboration between the Colombia Securities Exchange and the Global Reporting Initiative (GRI).
In 2021, the Colombian Financial Superintendency (SFC) directed financial entities and issuers to incorporate ESG criteria in investment decisions and risk assessments. Also, in the same year, the disclosure requirements for issuers concerning ESG matters was revised, mandating the inclusion of ESG and climate metrics in their quarterly and annual reports. This regulation has been in effect since February 2023.
Additionally, in 2022, Colombia became the first country in South America to establish a green taxonomy within its legal framework. During the same year, the Ministry of Finance and Public Credit (MFPC) incorporated the ‘Framework for Green, Social, and Sustainable Colombian Bonds’, detailing the criteria for issuing green or sustainable bonds in local and international markets.
In summary, Colombia stands out as one of the most progressive countries in South America when it comes to regulating ESG disclosures with its a unique green taxonomy.
Chile: following international trends
Since 2015, regulators in Chile have made significant strides in implementing ESG disclosure requirements. In that year, the Financial Market Commission (CMF) introduced a rule that mandated listed companies and other issuers of publicly traded securities to complete a comprehensive sustainability questionnaire. Building on this progress, the Santiago Stock Exchange (SSE) published a Sustainability Reporting Guide (SR Guide) in 2017, aimed at promoting greater awareness and understanding of ESG principles within the Chilean market.
In a further development, the CMF issued General Rule No. 461 in November 2021. This rule mandates listed companies and other issuers of publicly offered securities to disclose information related to corporate governance, social responsibility, and sustainable development practices in their annual reports. This regulation is based on the SASB standards and is set to be fully implemented by the end of this year, specifically by December 31st.
Additionally, in September 2022, the CMF issued guidelines to assist companies in implementing the SASB standards.
The Santiago Stock Exchange has various indices that assess sustainability in Chilean companies: Dow Jones Sustainability Chile Index (DJSI Chile), Dow Jones Sustainability MILA Pacific Alliance Index (MILA), Stakeholders Sustainability Index Chile™ (SSIndex Chile), and the latest one: S&P IPSA ESG Tilted Index, launched in January 2021.
Overall, these regulatory initiatives in Chile reflect a growing commitment to ESG transparency and accountability, as well as an acknowledgment of the importance of integrating sustainability practices into corporate reporting.
Argentina: progressing but still voluntary
Since 2017, the Argentine stock exchange (BYMA) has signed a commitment letter with the United Nations Sustainable Stock Exchange (SSE) initiative, pledging to share information and collaborate with stakeholders to promote the sustainability and transparency of capital markets. It also developed a Sustainability Index composed of 20 companies and based on four pillars: E, S, G, and the contribution to the SDGs.
In 2021, the National Securities Commission (CNV) of Argentina issued several standards, such as the Guide for Socially Responsible Investment in the Argentine Capital Markets (SRI Guide), the Green Bond Guide, and the Guide for External Review. Recently, in 2023, the same Commission prepared a handbook for voluntary reporting and disclosure of ESG information. This serves as guidance for issuers in the disclosure of ESG information and promotes best practices and international standards in the market.
In summary, while ESG regulations remain voluntary in Argentina, progress has been made in creating awareness among listed companies and firms in the financial sector.
Peru – Ecuador – Bolivia – Venezuela: showing little development
Other countries in the region are less developed in terms of ESG disclosure regulations pertaining to listed companies on the local stock exchanges. In the case of Peru, the BVL (Lima Stock Exchange) has the S&P/BVL Peru General ESG Index and other sustainable financing instruments, like different types of ESG bonds. These are also available on the main exchanges in Ecuador (Quito and Guayaquil). However, no further progress has been made in ESG or sustainable disclosure regulations in these countries. In the case of the stock exchanges in Bolivia and Venezuela, the progress towards guidelines or regulations and awareness varies from being scarce to non-existent, respectively.
As a concluding remark, the implementation of ESG regulations, initially targeting public companies and the financial sector, hinges on the openness of a country’s economy and its alignment with strategic partners and is an important consideration for countries looking to maintain their position in international markets and trade. Companies in South America understand that to keep international business flowing, they must align with import regulations worldwide, including ESG. Therefore, large private or public companies are already taking measures and disclosing information that is not necessarily mandatory, as a precursor to what the most advanced markets are demanding. Moreover, companies that are part of large conglomerates operating in South America are exerting a positive influence on their peers to be aware and take a stance when discussing and acting on sustainability. Regardless, we are discussing business in a world where no one wants to be classified as a laggard and left behind, especially when it carries a financial impact.
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1 Global ESG assets predicted to hit $40 trillion by 2030, despite challenging environment, forecasts Bloomberg Intelligence | Press | Bloomberg LP
