Colombia Leads the Way on ESG Reporting and Green Taxonomy

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Discussions regarding how and why shareholders should consider the impacts and implications of their business activities for the so-called stakeholders, in the short and long term, have defined the approach that managers, policymakers, regulators, counterparties and international organisations utilise when assessing both value creation in societies and enterprises’ role in that respect. Nowadays, nobody can dispute that stakeholders are crucial for enterprises and vice versa; therefore, it is mandatory to set out proper and sound legal frameworks worldwide that guarantee the maximisation of value.

To that end, despite recent criticisms arising from academic and industrial sectors, ESG criteria have allowed policymakers to better understand the interests involved in markets, as well as their interactions and the alternatives that could be employed – case by case – to properly align such interests with the purpose of obtaining the highest possible social value. Broadly speaking, ESG criteria offer societies the possibility of critically analysing their current economic and social institutions, principles and values, with the possibility of identifying the changes that would be desirable to improve social metrics and perspectives in future years.

Under this global trend that has shaped the way in which the United States and Europe are handling ESG concerns and adapting their legal frameworks accordingly, Colombia has undertaken developments in this area within its capital markets, financial system and certain economic sectors. As a result, Colombia is currently considered a beacon in Latin America and the Caribbean region in terms of ESG understanding, reporting and green taxonomy, in accordance with international standards, among countries with civil law traditions and foundations.

In brief, amid the variety of strategies and alternatives for ESG criteria, during recent years, Colombian policymakers and regulators have opted to introduce new reporting standards and green taxonomy criteria with binding effects for listed companies and investment funds (the Issuers).[2] The main purpose of this paper is to explain these recent developments, outlining how they have impacted capital markets and their participants, and more importantly, how they may contribute to fostering value-creation initiatives in Colombia and Latin America. Although it is too early to state a definitive view, on account of parallel experiences worldwide, this paper will also highlight additional approaches that both local and foreign authorities could consider as a means of improving current legal systems and finally achieving the objectives for which ESG criteria are now being used.

Colombia has a long-standing tradition in respect of promoting and implementing global initiatives in favour of social inclusion, climate change mitigation, peace efforts, responsible and conscious development, and social and environmental affirmative actions. Despite the fact that Colombia is a country with a vast range of needs and deficiencies in these areas, it has an unquestionable commitment to making improvements by combining interactions between the public and the private sectors. Thus, it is worth noting that Colombia is a member of the Paris Climate Agreement, the United Nations Environmental, Social and Governance Objectives, and the OECD’s Principles of Corporate Governance, permitting the country to actively participate in global discussions and enhance local rules and standards accordingly.

The National Development Plan currently in place – Law 2294 of 2023 titled ‘Colombia Potencia Mundial de la Vida’ (‘Colombia Global Potential of Life’) – contains the general objectives that the Colombian national government will foster in the next four years, along with the financial etimates and budget needed for this endeavour. As the Colombian Constitution sets forth, the National Development Plan – and especially, the estimates of required investment included in the law – prevails over other laws since it reflects the desires of the majority of Colombians. Therefore, all programmes and public policies must be designed and deployed to achieve the general objectives and the provisions contained in the National Development Plan.

As a general objective, Article 2 of Law 2294 of 2023 establishes the mandate of transforming productive sectors and introducing affirmative actions to cope with negative climate impacts. Additionally, Article 88 of Law 2294 sets out the necessity of actively promoting instruments for financial inclusion and green financing, with particular efforts in innovative and entrepreneurial endeavours. Finally, Articles 346 and 347 of this law provide that at least 30 per cent of boards of directors of listed companies and financial entities with majority Colombian State ownership must be composed of women. Considering their legal nature and the legitimacy that covers the National Development Plan, these legal provisions encompass the principles and general goals with which public authorities and private participants must comply.

In light of general objectives for accomplishing and consolidating sustainable development defined by local authorities in harmony with international treaties and organisations, since 2021 the Colombian Financial Superintendency (SFC) has enacted several regulations and issued technical documents in connection with ESG criteria and their adoption within the financial sector. In short, general instructions, standards, and parameters to incentivise friendly-market ESG practices and sustainable investments under objective conditions were laid out through these rules and technical documents. We highlight the following circulars, general guidelines and technical documents:

Circulars issued by the SFC
1Circular 007 of 2021: It was the first time that the SFC instructed financial entities and Issuers to observe ESG criteria in connection with their investment decisions and risk assessments as key factors for the assembling and maintenance of their investment portfolios.

Circular 031 of 2021: This circular modified the disclosure regime for Issuers in relation to ESG matters under standards for materiality (criterio de materialidad). For said purpose, it adopted international standards laid out by the Task Force for Climate Related Financial Disclosure (TCFD) and the SASB standards introduced by the Value Reporting Foundation (VRF).

The SFC decided to implement these standards since they were the latest state of the art in for disclosure, with the most innovative, demanding and comprehensive requirements at the time of publication. However, according to Circular 031, Issuers shall apply the standards that either update or modify them from time to time, in order to guarantee the regulation will be never outdated compared to the best international standards and practices. This rule is extremely beneficial in practice since current standards are currently in the process of being changed coming out of the work of the International Sustainability Standards Board.

3Circular 005 of 2022: By virtue of this circular, Colombia was the first country in Latin America to set forth a green taxonomy within its legal framework. Firstly, this circular provides instructions and parameters to capital markets’ participants as a means of building up environmentally friendly markets. Secondly, this circular sets forth guidelines for an investment to be deemed sustainable from an environmental perspective. Thirdly, this circular was a milestone instrument for the Colombian state in its effort to achieve the right balance among sustainable growth, social welfare, and environmental and biodiversity conservation.
4Circular 008 of 2022: This circular sets out the legal regime applicable to the offering of sustainability-linked bonds (SLBs). As a result, from then on, in the respective offering memorandums, Issuers that intend to offer SLBs must include information on key indicators and sustainable performance objectives that they will satisfy. Consequently, SLBs and Issuers’ performance must be verified by external supervisors and also, Issuers must provide markets with certain reports outlined by the circular.
5Circular 020 of 2022: Building upon Circular 008, this regulation states the minimum disclosures that must be included in bond prospectus to be considered as green, orange, blue, SLBs or sustainable bonds.
 General guidelines
1General guidelines on best practices and instructions for investment processes undertaken by private equity funds.
2General guidelines on best practices and instructions for issuing green bonds.
 Technical documents
1Technical document titled ‘ROADMAP: Towards the greening of the Colombian financial system: Green Financing and Climate Change strategies laid out by the Colombian Financial Superintendency’.
2Technical document titled ‘Management of climate risks and climate opportunities for banks’.

In the same vein, according to Article 4 of Law 2073 of 2020, the Ministry of Finance and Public Credit (MFPC) issued Resolution 2062 of 2022, which sets forth the current legal framework in effect that governs the issuance of green, social and sustainable bonds by the Colombian state. Resolution 2026 incorporates the technical instrument constructed by the MFPC titled ‘Framework for Green, Social and Sustainable Colombian Bonds’, which depicts the criteria that must be observed when the Colombian state intends to issue green or sustainable bonds – of any kind – in local and international capital markets. This resolution has been deemed as a milestone decision by the Colombian state in terms of the harmonisation and updating process explained in this paper.

Although each of said rules and technical documents has entailed an absolute revolution in paradigms itself, none of them has more relevance nowadays than Decree 151 of 2021 whereby the MFPC – with the support of the SFC – modified the legal regime of reporting and disclosure applicable to Issuers. Legal standards and provisions set forth in Decree 151 of 2021 are legally effective as of 10 February 2023, after a two-year period in which Issuers were required to adopt their internal policies and procedures to fully accomplish the new set of rules and requirements.

In respect of ESG criteria, Articles and of Decree 151 of 2021 provides that Issuers must include within their quarterly periodic reports and annual reports a specific section depicting their internal and corporate practices, policies, processes, and statistics regarding the performance of ESG and climate metrics. These reports must describe in great detail how Issuers define their investment strategies and corporate governance protocols and rules based upon their particularities, the industries and sectors where they participate, and local and global contexts. These reports must be submitted through the National Register of Securities and Issuers (RNVE) managed by the SFC.

In the terms of Circular 031, the specific section on ESG and the corresponding updates must be disclosed as follows: For annual reports, these must happen within 15 working days after either the general shareholders’ meeting or of the body that replaces it; or their submission to the competent state or territorial body, in the case of national public entities, foreign public entities or foreign governments. For quarterly periodic reports, they must happen within 45 calendar days following the last calendar day of the quarter that is reported.

In this regard, Decree 151 emphasises two main standards that must be considered when preparing and issuing quarterly-periodic and annual reports:

On the one hand, according to Article of Decree 151, ESG criteria shall be defined, reviewed, consolidated and reported under standards for materiality. Consequently, Issuers shall reveal to the market those ESG aspects that would be material for any investor when making an investment decision. Circular 031 of 2021 states that standards for materiality shall be in respect of current and future impacts – either positive or negative – that ESG criteria, including climate-related issues, may have on the financial balance sheets of the respective Issuers.

On the other hand, Decree 151 indicates that analysis, reports and disclosures must be carried out in consideration of potential risks brought about by changes in ESG criteria over time. Therefore, Issuers must uncover any potential changes they may face, even if they have not occurred or are unlikely. In that sense, all disclosures to the market shall cover any possible scenario, pointing out the variables and factors of any kind – either local or foreign, internal or external – that could increase the chances of the identified risks having real impacts.

Since all Issuers are dissimilar from one another in terms of their financial, economic, corporate, and size features, Decree 151 and Circular 031 of 2021 categorise these entities into four groups. Depending on the group, Issuers have to comply with ESG reporting in the following conditions:

  • Group A: this group encompasses those listed companies part of the MSCI Colcap – that is, the principal reference for the Colombian Capital Markets composed of the most liquid 20 issuers and 25 securities of the market that meet two of the following criteria on 31 December of the immediately previous year: (1) owning assets greater than 3.8 million legal minimum monthly wages in Colombian pesos; (2) registering annual income equal to or greater than 1.9 million legal minimum monthly wages in Colombian pesos; or (3) registering a payroll equal to or greater than 1,000 employees.
  • Group B: investment funds of any kind: mutual funds, collective investment funds, private equity funds, trust structures and securitisation schemes, excluding exchange-traded funds (fondos bursátiles).
  • Group C: other issuers that cannot be classified in Groups A, B, or D.
  • Group D: companies that are either registered on a temporary basis before the SFC in the RNVE or are set up to issue pension bonds.

Circular 031 provides that Issuers classified into such groups must report the following information.

Group A

Using clear, simple and straightforward language, these entities must include a brief description of the procedures deployed to identify any material impacts in the terms depicted in Article of Decree 151 explained above. In doing so, the standards for materiality shall be expanded and justified, indicating the reasons why disclosed information is deemed as material for investors in the market. In case these entities claim that there is no ESG information that must be revealed, they must share the reasons that support such conclusion.

Additionally, these entities must disclose information on climate-related issues using the methodologies and recommendations made by the TCFD or any other framework or standard that replaces it. In this regard, Group A entities can also include further analysis to show their resilience to stress scenarios related to climate change.

Moreover, Group A entities must inform the market of the environmental and social metrics provided in the VRF’s SASB Standards or any standard or framework that replaces it. They should include the reasons that support any eventual decision for not disclosing any of the metrics pertaining to their industry. In order to do so, these entities must prepare a qualitative description of the revealed metrics based on the provisions of the VRF’s SASB Standards, or any standard or framework that replaces it, explaining at a minimum: (1) the governance of their internal organisations, addressing the role of boards of directors, committees and senior management in that respect; (2) their corporate strategy to assess and improve performance of ESG criteria; and (3) the identification, assessment and management of social and environmental risks. This data must cover metrics of Group A entities’ affiliates.

In connection with the information previously disclosed, these entities may choose to attach an opinion issued by an independent third party – either an individual or a legal entity such as their external auditor – regarding their full compliance with the instructions provided by the SFC regarding the reporting of ESG criteria.

Group B

Using clear, simple and straightforward language, investment funds – in the terms mentioned in point 1 – must report the sustainability and responsible investment practices employed by the managers, administrators, management agents or their equivalent as per the respective applicable framework.

In that sense, investment funds must reveal, at a minimum, the performance of the ESG criteria included in their investment policies – when that is the case. As such, they must inform about the strategies they deploy to comply with ESG criteria, specifying how they respond to portfolios’ objectives and to the risks associated with management practices.

Furthermore, in case investment funds have a moniker tied to any ESG criteria, such as, ‘sustainable’, ‘responsible’, ‘green’ or any other that may be linked to positive social or environmental impact, or utilise social and environmental issues for marketing either themselves or their underlying assets, they must explain how and why their investment policies and the corresponding business strategies contribute to achieving ESG objectives. When reporting, they must also give explanations on whether a classification system or taxonomy is used to define and select the activities, projects and assets in which their investments are made. To that end, Group B investment funds are able to rely on the Green Taxonomy of Colombia (laid out by Circular 005 of 2022). Finally, investment funds must expressly state in their reports if they neither use said monikers nor implement ESG criteria when marketing themselves or their underlying assets.

When investment funds are only registered in the RNVE, this information must be sent to the respective investors and funds’ manager shall certify such distribution to the SFC.When investment funds are listed, this information must be distributed to the market throughout the RNVE via the systems specified by the SFC.

Group C

Like Group A, with clear, simple and straightforward language, these entities are obliged to disclose a brief description of the procedures employed to identify material information related to ESG criteria within their operations. These reports must comply with the same standards explained above and especially, with the standards for materiality. Hence, they must inform the public about the reasons that support any judgment in that respect and any eventual decision – in qualitative and quantitative terms – to not disclose anything in connection with ESG criteria and their impact on their business.

Group D

Taking into consideration the particularities of Group D entities, they must disclose the same data as Group C entities. If they do not report any of such information, they must briefly explain the technical, legal and financial reasons they previously assessed when deciding to proceed in that way.

It is worth noting that Circular 031 of 2021 provided Issuers of Groups A, B, C and D until 10 February 2023 to provide an Implementation Plan describing the measures they would use internally to share ESG information under the terms explained herein as of January 2024. Thus, by the time this paper is published, all Issuers will have submitted their Implementation Plans to the SFC, being able to provide the market and investors with quarterly periodic and annual reports with a specific section on ESG criteria and metrics.

Colombia is the first country in Latin America to implement these reporting standards, with foreseeable synergies for the merger process that the stock exchanges of Colombia, Peru and Chile are currently carrying out. Furthermore, it is expected that unlisted companies and other market agents start replicating reporting standards as a means of enhancing their commitments to ESG criteria and proving their contractual and potential counterparties with sufficient and precise evidence of how well they perform and adjust their internal policies, manuals and procedures accordingly. After all, Issuers and capital markets regulations are a paradigm for other players and sectors in local and global markets.

Even though Decree 151 and the circulars listed above have contributed to accomplishing significant achievements with respect to ESG criteria and their application in Colombia, from our standpoint, there are certain aspects that local and foreign policymakers and regulators should consider the following.

First of all, it is possible to argue that the current legal framework lacks unification and depth. Although Issuers must observe the standards and rules set out by the MFPC and the SFC, they still have broad discretionality to decide the methodologies, data, risks and events they will reveal in quarterly periodic and annual reports.

The standards for materiality previously explained are crucial to circumventing any misdeeds in that respect; however, there are no general guidelines that define how they must be fulfilled in specific cases, leaving the matter to the subjective criteria of Issuers. A certain level of discretion is desirable since regulators cannot forecast all possible scenarios, but total subjectivity regarding ESG criteria and their reporting may be detrimental for investors, for instance, it might result in green-washing behaviours.

Colombia, as other countries worldwide, faces structural concerns within its capital markets: there are only a small number of Issuers with a downward trend and also, Issuers are totally dissimilar to each other. As a consequence, Issuers are not able to bear the same regulatory burdens, especially when these entail more costs for their operation. Hence, regardless of the benefits and goals that motivate new regulatory measures, excessive standards might be extremely detrimental to capital markets in the aggregate.

Having said that, unfortunately, ESG criteria and rules set out by Colombian authorities do not take into consideration the particularities of the current situation of local capital markets. Despite the fact that new standards are aligned with best global practices and may contribute to more accurate and pertinent information for investors, they should have considered the financial and commercial particularities of each Issuer. The classification of Issuers into Groups A, B, C and D included in Decree 151 sheds some light, but it is not enough to avoid said negative consequences. It should be remembered that positive discriminatory regulatory measures are imperative to foster and consolidate capital markets in developing countries.

Moreover, ESG standards and rules enacted by Colombian authorities reduce their scope of action into reporting duties in charge of Issuers. In the short run, reporting measures are costly for Issuers and the easiest option for policymakers and regulators to address concerns in financial and capital markets; nonetheless, in the long run, public authorities do not have enough resources to sufficiently verify Issuers full compliance beyond formal controls in the best-case scenario.

For that reason, it is advisable that Colombian policymakers and regulators put in place other regulatory measures in favour of ESG criteria rather than only requesting the disclosure of certain information in given periods. For instance, Colombian authorities should be able to validate directly whether Issuers are complying with ESG metrics and with the employment of corporate, finance and business strategies that improve their internal registers. In addition, it might be beneficial to go beyond finance and capital markets and introduce new standards in consonance with ESG goals within the sectors in which Issuers develop their activities and investments.

Finally, even though ESG criteria are crucial today for achieving global objectives with respect to climate change, inequality, sustainability and social welfare, some criticisms have recently arisen regarding their effectiveness and real positive impacts. It is perhaps not the time to conclude whether ESG criteria are appropriate or not; however, Colombian local authorities should take into account said viewpoint as a means of informing the current regulatory approach and obtaining better environmental, social and governance results for Issuers, investors and the society as a whole.

In light of the above, from our standpoint, it is possible to argue that Colombia is now leading the way in Latin America and the Caribbean due to recent regulatory developments on ESG reporting and green taxonomy. Colombia has taken advantage of its position in international forums and incorporated novel approaches in favour of social inclusion, climate change mitigation, peace efforts, responsible and conscious development, and social and environmental affirmative actions within its legal framework. Therefore, rules and standards set forth in decrees, circulars, general guidelines and technical documents – especially, in Decree 151 of 2021 and Circulars 031 of 2021 and 005 of 2022 – should be considered as appropriate references for other countries in the region in their efforts to enhance ESG criteria. Having said that, Colombian, foreign and multilateral authorities should bear in mind, among other things, the points raised in this chapter to better deal with ESG concerns, tackle related challenges ahead, and more importantly, achieve the best possible future for the planet.


[1] Luis Gabriel Morcillo is a partner and Nicolás Arocha is a senior associate at Brigard Urrutia.

[2] Issuers include investment funds and listed or unlisted corporations registered in the RNVE – as this term is defined in the paper. When talking about investment funds in this paper, we refer to collective investment funds, private equity funds (respectively, fondos de inversión colectiva and fondos de capital privado) and general investment funds registered in the RNVE, either traded or not in the Colombian Stock Exchange, with the exception of exchange-traded funds (fondos bursátiles).

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