Status and Pitfalls of ESG Standards in Latin America

This is an Insight article, written by a selected partner as part of Latin Lawyer's co-published content. Read more on Insight


ESG reporting standardisation across Latin America is a work in progress. The rationale for ESG reporting is to encourage mindful environmental, social and governance practices by companies to optimise their business for investors and society at large. In Latin America, as is the case globally, climate change has been a driving force behind increasing governmental, consumer and investor demands for ESG reporting standardisation.

Given the increasing calls for ESG information, a plethora of reporting frameworks and standards have emerged. International treaties arising out of United Nations (UN) conventions have played a large role in cementing countries’ commitments to address climate change, primarily through the 2015 UN Climate Change Conference (Paris Conference) and the 2021 UN Climate Change Conference (COP26). These conferences resulted in the Paris Agreement and the Glasgow Climate Pact, respectively, which have been catalysing the movement to hold countries and corporations accountable under ESG initiatives and regulations. Non-governmental organisations (NGOs) such as the International Financial Reporting Standards Foundation (IFRS) and its International Sustainability Standards Board (ISSB) are also promulgating global standards. Meanwhile, countries or region-wide bodies such as the European Union (EU) are adopting new legislation and regulations to impose ESG frameworks or regulations on listed companies or issuers.

This surge in treaty-based, intergovernmental organisation (IGO), NGO and national ESG frameworks and standard-setting is attributable to increased interest that is both top-down (commitments by governments) and bottom-up (changes in the values of customers, investors and the overall political environment). As a result, there is an exponentially growing demand for transparency, disclosure and uniform standards for ESG principles. As stated by the ISSB, ESG standards and frameworks create a lens for reviewing how environmental, social and governance factors create or erode the value of an enterprise, impact its financial returns and affect how it is viewed by consumers of general financial information. When countries pledge to meet ESG targets and to produce ESG reports through international treaties and other commitments, they in turn directly pursue ESG-minded investments and also encourage, or even require, companies in their jurisdiction to do the same.

The ESG reporting frameworks and standards discussed in this chapter are distinct from green bond or sustainable bond frameworks and standards, which will be discussed in more detail in Chapter 5, ‘Financing Sustainable Development in Brazil and Mexico’. As a general matter, green bond and sustainable bond regimes are linked to specific bond issuances, while ESG reporting regimes are tied to countries or companies. The former is voluntary – a company may choose to issue a green or sustainability-linked bond or choose not to do so – while the latter may be voluntary or mandatory. The adoption by a country’s stock exchange of a voluntary green bond or sustainable bond framework may help set the stage for the development of a more robust domestic mandatory reporting regime, but the two processes are distinct in their focus.

Evolution of ESG standards

While climate change has been on the minds of governments since the late 1980s and 1990s, it was brought to the forefront with the Paris Agreement. The Paris Agreement’s mission is to strengthen the global response of government agendas to the threat of climate change by limiting global temperature rise this century to less than 2ºC above pre-industrial levels and to aim to limit the temperature increase even further to 1.5ºC. To do so, the Paris Agreement set a goal for countries to reach their peak emissions as early as possible but not later than 2030. While 195 out of 197 parties to the Paris Conference are signatories to the Paris Agreement, the goal of reaching peak emissions by 2030 will not be achieved.

To re-evaluate the Paris Agreement in the context of further evolving interests, conditions and political climate, the UN countries once again met at COP26, which took place in November 2021 and resulted in the Glasgow Climate Pact. During COP26, participating countries agreed that the 2020s were a critical decade for carbon dioxide emissions, which they agreed must be reduced by 45 per cent to reach net zero by 2050. Participating countries also agreed to phase down coal power and to phase out inefficient fossil fuel subsidies. Developed countries were urged to deliver funding to developing countries in need of climate change prevention financing. COP26 provided important building blocks to modify and advance the implementation of the Paris Agreement, and at COP26 the IFRS established the ISSB in an attempt to develop a comprehensive global framework for sustainability disclosure.

To build upon the Glasgow Climate Pact, UN countries reconvened at COP27 in November 2022, resulting in the Sharm el-Sheikh Implementation Plan. Participating countries quantified the resources needed for a transition to a low-carbon economy by 2050, which they determined would require an investment of at least US$4 trillion annually until 2030. Developed countries also recognised the barriers in accessing capital and the need for climate change prevention financing in developing countries. This led to the establishment of a Loss and Damage Fund for which metrics will be agreed upon at COP28. In addition, the parties continued to call for systemic reform to the ‘out-dated’ lending mechanisms of multilateral development banks (MDBs) like the International Monetary Fund (IMF) and World Bank. Under the current global development finance structure, developing countries face higher debt servicing costs and more limited access to funding than wealthy nations, leading to a vicious cycle of growing debt and shrinking resources. The Bridgetown Initiative, unveiled prior to COP27 by Barbadian Prime Minister Mottley, aims to provide more inclusive and resilient climate financing to developing nations so they will be better equipped to respond to escalating climate crises. The Bridgetown Initiative proposes mechanisms that, for example, will unlock financing on more favourable terms, alter loan repayment practices, and accelerate private sector funding in mitigation and reconstruction.[2] It has received support from key actors, including France, the EU, Brazil and the IMF, and will be a central topic at key finance events in the coming years. While COP27 saw important developments in climate financing, efforts to further cut emissions or phase-out the use of all fossil fuels were halted in part because of conflicting views of ‘low-carbon economy’ practices. Participating countries ultimately came to an agreement to accelerate deployment of renewable energy as well as low-emissions energy, but there were concerns that the latter referred to natural gas and carbon-capture technologies, undermining incremental progress towards the net-zero goal. Regardless, COP27 represented a crucial shift towards focusing on the development of robust implementation mechanisms to reach the commitments first made in the Paris Agreement.

COP28, which was scheduled to take place shortly after the time of writing in late November 2023, will seek to propel more action through the culmination of the first-ever Global Emissions Stocktake. Established at COP26, the Global Stocktake is a two-year process designed to evaluate global progress towards achieving the goals set forth by the Paris Agreement and identify gaps for course correction. Focused on accountability and acceleration, the process consists of information collection and preparation (Phase 1), technical assessment (Phase 2), and finally consideration of outputs (Phase 3). Phase 1 and Phase 2 coincided and both concluded in June 2023. In Phase 1 countries focused on collecting data to compile a report synthesising their specific state of emissions, current adaptation efforts, climate financing needs, and national climate action plans (known as Nationally Determined Contributions (NDCs)). Phase 2 consisted of three forums for countries to engage in technical dialogues that not only took stock of past actions and scientific findings, but also pushed forward climate action by identifying key barriers and showcasing new solutions. Now in the final phase, countries have turned their focus from compiling technical findings towards discussing the implications and potential applications to nationally determined policies. Concluding in November 2023 at COP28, Phase 3 can lay a foundation for countries to cooperate internationally in revising their climate strategies and NDCs to better align with the goals of the Paris Agreement. This will be critical in ensuring maximum impact and implementation.

With respect to IGO frameworks and standard setting for ESG criteria, the UN has also long led the way. In 2015, the UN Summit adopted 17 sustainable development goals (SDGs) as a call to action for UN Member States. The goals are aimed at helping UN Member States to work towards world peace, sustainability and prosperity. While many of the SDGs are also related to climate action, such as clean water and sanitation, affordable and clean energy, and sustainable cities and communities, others relate to social aspects such as poverty and hunger. The SDGs are regularly monitored every year when the UN Secretary General presents an annual SDG progress report. The UN has attempted to align business awareness and action with the SDGs through initiatives like Making Global Goals Local Business or the SDG Compass report, but these do not alleviate the problems many companies encounter with the SDGs, such as their broad scope and varying relevancy or how reporting can be complex and resource intensive.[3] While the SDGs are important as an overarching set of goals for the international community that push countries towards greater ESG awareness and action, they are not tailored for implementation at the level of an individual company.

One NGO that has been actively developing ESG criteria for companies is the Global Sustainability Standards Board (GSSB), which established the Global Reporting Initiative (GRI). The GRI Standards purport to enable organisations – large or small, private or public – to understand and report on their impact on the economy, environment and people in a comparable and credible way, thereby increasing transparency on their contribution to sustainable development. The GRI standards went into effect 1 January 2023 and are divided into the Universal Standards, New Sector Standards and the Topic Standards. The Universal Standards apply to all reporting organisations and incorporate reporting on an organisation’s activities, governance, policies and material topics, including the organisation’s most significant impacts on the economy, environment and people, including human rights. Organisations use the Sector Standards to determine the relevant material topics for their particular sector and what information must be reported for those material topics. To date, standards have been published for three out of 40 sectors: oil and gas (GRI 11), coal (GRI 12), and agriculture, aquaculture and fishing (GRI 13).[4] The Topic Standards list disclosures relevant to 31 particular topics, such as waste, economic performance, procurement practices and anti-corruption. Participating organisations reporting ‘in accordance’ with the standards receive a higher degree of credibility as opposed to organisations reporting ‘with reference to’ the standards because they have satisfied all nine reporting requirements. Organisations may choose the latter reporting option if they are unable to meet all nine requirements or if they are only reporting for a narrow purpose, such as to comply with regulatory requirements.

Another NGO, the IFRS, which established the International Accounting Standards Board (IASB) for accounting standards, has now established the ISSB for sustainability disclosure standards. The ISSB assumed responsibility for the Sustainability Accounting Standards Board (SASB) Standards in August 2022 and is continually enhancing the existing SASB structure to enable companies to use them for disclosure purposes in conjunction with the ongoing development of the IFRS Standards. These updates include removing specific jurisdictional references in the SASB standards to broaden their global applicability as well as adding new topics relevant to IFRS S2. The ISSB recommends preparers and investors use the updated SASB Standards to meet their immediate disclosure needs to be met while also establishing a strong foundation for the eventual adoption of IFRS Sustainability Disclosure Standards in coming years.

The first set of these standards, IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 – Climate-related Disclosures (IFRS S2), officially launched in June 2023 and will go into effect starting 1 January 2024. The IFRS S1 is the foundational document of the ISSB and details the overall approach companies should take to disclose information about their sustainability-related risks and opportunities in a manner that would be helpful to investors. IFRS S2 builds upon IFRS S1 by setting disclosure standards for climate-related risks and opportunities, such as physical and transition prospects, that encompass both cross-industry and industry-specific information.

The ISSB’s stated goal is ‘to build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets’. These standards build on the content from various other organisations, including the CDSB Framework, the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework, the SASB Standards and the World Economic Forum’s Stakeholder Capitalism Metrics.[5]

As detailed above, governments and companies in Latin America attempting to adapt to the growing pressure for ESG information face a daunting and often overlapping set of reporting frameworks that vary in detail and scope from IGOs, NGOs and, as discussed further below, their respective countries. The various layers of frameworks and standards that may be relevant to a particular company can cause confusion, result in substantially overlapping or duplicative requirements, and necessitate the expenditure of significant resources. Conversely, the patchwork reporting environment can present opportunities for companies to ‘greenwash’ or take advantage of ambiguities to exaggerate their sustainability credentials. The branding benefits of touting company ESG credentials are currently outpacing the world’s ability to effectively evaluate ESG authenticity – as a surprisingly poignant example, COP27 was sponsored by Coca Cola, which has consistently been named by industry watchdogs as the world’s single biggest plastics polluter.[6] COP27 was also attended by a record number of fossil fuel industry lobbyists, sparking debate over whether the numerous discussions of natural gas as a ‘clean fossil fuel’ is another attempt by organisations to ‘greenwash’ their practices for the benefits of ESG branding while evading accountability.[7] In response to these issues, some organisations, such as the We Mean Business Coalition (WMBC), a group of sustainable business and investment-focused organisations, including Ceres, CLG Europe, Climate Group and The B Team rallied for a global baseline of ESG disclosure standards. In a letter addressed to the GRI and ISSB, among others, the WMBC described the potential downsides when it comes to varied and inconsistent ESG reporting in addressing the imminent risk of climate change and emphasised the importance of standardised reporting in order to meet the goals set by the Glasgow Climate Pact.

A path towards global standards

Setting a global standard is a significant undertaking, and the ISSB is smartly building upon a decade of work by the SASB in developing industry-specific guidelines in the ISSB’s IFRS S1 and IFRS S2. Come January 2024, companies will still be required to consult SASB Standards to identify risks and opportunities in the absence of relevant industry specific IFRS Sustainability Disclosure Standards. The IFRS already provides a global framework and standard-setting regime for accounting and financial reporting, and the IFRS and ISSB are using similar conceptual frameworks in the IFRS S1 and IFRS S2. In certain respects, the approach taken in the IFRS S1 and IFRS S2 can be likened to the ‘risk factors’ section of an offering memorandum – reporting entities must assess the potential material risks to their own value, describe those risks, and describe the processes and management practices they have in place to mitigate those risks. In addition, companies are required to set objective ESG metrics and targets. An inherent challenge with the type of reporting required by IFRS S1 and IFRS S2 is that judgment is required to determine whether a risk is material to the company in question. Further, the company must make a good faith representation of the risks it faces – that is, it cannot understate or overstate particular ESG or climate change-related risks or benefits. This means that there is always a lurking possibility that bias may be embedded in the reporting. This is not unlike financial reporting. However, to date, unlike financial statements that are required to be audited on an annual basis, frameworks such as the ISSB IFRS S1 and IFRS S2 do not require an opinion of independent third-party ESG auditors. Despite the ISSB’s comprehensive and thoughtful approach, these subjective criteria permit the possibility of greenwashing. Another potential difficulty with IFRS S2 for smaller companies is that it strongly encourages climate-change risk scenario analysis, which is something that could require substantial resources or be outside of the capabilities of a smaller enterprise.

Following its review of the comments submitted to the ISSB by 20 large global asset managers during the exposure drafts and comment period ending June 2022, Morningstar noted that the comments showed very broad support for the ISSB to establish a ‘global baseline’ for investor-focused climate and sustainability reporting, with some respondents specifically highlighting their belief that ISSB’s proposed IFRS S1 and IFRS S2 would help align differing requirements across countries. However, the group had differing opinions on the definition of materiality, the scope of required emissions disclosures, and the level of alignment with parallel regulatory initiatives in Europe and the US.[8] These challenges aside, the ISSB approach is comprehensive and builds upon years of prior work in ESG reporting without constraining jurisdictions from requiring additional disclosures.

The GRI and the IFRS have committed to coordinating their standard-setting efforts for financial markets to create an interconnected two-fold corporate reporting scheme. The widely adopted GRI Standards focus on information pertaining to how an organisation impacts the world. Referred to as ‘impact materiality’, this focus enhances transparency of the effects companies can have on people and the planet. On the other hand, the ISSB is designed to assist the decision-making process of investors by concentrating on information regarding sustainability risks and sustainability opportunities of an organisation. This focus centers on ‘financial materiality’, and aims to enhance the overall efficiency and resiliency of financial markets. The distinction between these two types of material information helps resolve one of the challenges noted by Morningstar above. Investors with differing opinions on what ‘materiality’ means can take comfort in the clear distinctions made by the GRI and the IFRS. When taken together, known as ‘double materiality’, the GRI and IFRS will promote a comprehensive reporting system that provides a more complete picture on ESG impacts and performance that accounts for both present actions and future outlooks.

The launch of the first set of IFRS Standards in June 2023 received strong global backing, including from the G7, the G20, the Financial Stability Board, the International Organization of Securities Commissions (IOSCO) and Central Bank Governors from over 40 jurisdictions. Now that the first set of standards has been published, the ISSB will work to promote adoption of IFRS S1 and IFRS S2 and launch capacity building initiatives for effective implementation. To assist companies in understanding and applying these standards, the ISSB launched the Knowledge Hub, an online e-learning platform that includes case studies and good practice guidance as well as an archive of key information from their consolidated organisations including the SASB, IR and CDSB. At COP27, the ISSB announced its new partnership framework designed to establish resources for comprehensive and consistent reporting globally across developed and emerging economies. Day-one partners include more than 20 organisations, like the Group of Latin American Accounting Standard Setters (GLASS), the WMBC and GRI. These standards are likely to be used more widely around the globe than any other single set of ESG standards have been previously. Such widespread adoption will reduce duplicative reporting and should over time lead to standardisation of information, ultimately enhancing the ability of regulatory bodies, consumers and investors to review and understand such information.

In the international loan market, ESG-linked deal volume has grown exponentially during the past decade. Unlike the bond market, many borrowers in the loan market are privately-owned companies on whom there is little publicly available information, including ESG-related information. Whenever ESG-related information is requested to be disclosed to the lenders, there is often confusion regarding the content and means of disclosure. In an effort to streamline the varied and often duplicative ESG-related information disclosure practice and provide borrowers with access to a standardised tool intended to help improve the dissemination of reliable ESG-related information, the Loan Syndications and Trading Association (LSTA) released its inaugural Environmental, Social and Governance Questionnaire (ESG Questionnaire) in February 2020, which includes a set of standardised ESG-related questions about a borrower and its business, and is designed to be used by borrowers during the loan origination period, as part of lenders’ due diligence process, or throughout the life of a loan facility for continued monitoring.

Despite the progress sparked by the ESG questionnaire and its subsequent uptake after its launch, ESG reporting by borrowers in the private credit and syndicated loan market has not advanced as quickly as necessary to meet growing investor and regulatory demands. In November 2022, the LSTA, together with the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA), and the United Nations-supported Principles for Responsible Investment (PRI), announced the launch of the ESG Integrated Disclosure Project (ESG IDP) Template, the first-of-its kind ESG harmonisation effort for loan market. The ESG IDP Template is in excel format and is available for download on ESG IDP’s website. It represents a set of questions that are designed to solicit a global baseline of ESG-related information from private companies.

There are two categories of questions. First, general questions, which pertain to information applicable to any company in any industry, including a company’s sector and industry exposures based on the SASB Sustainable Industry Classification System (SICS), its economic size and location of operations. Second, industry-specific questions, which ask questions specific to the industry of a company based on SASB Standards per the SASB SICS and such company’s selection of industry. The best practice for the use of ESG IDP Template is for the companies to complete it during the due diligence phase and share it with all prospective lenders by posting to the deal data site and agent site so that primary and secondary trading market participants can use the collected information to support their investment analysis. In the short time since its launch, the positive reaction to the ESG IDP’s efforts has been tremendous. Lenders, borrowers, investors, arrangers, data providers and private equity sponsors across the market are now using the ESG IDP Template to improve data collection, borrower engagement, portfolio monitoring and investor reporting processes.

Based on industry feedback, the ESG IDP Template was updated in July 2023 to include new fields as well as footnotes to support users’ understanding of how these data points may support compliance with the EU Sustainable Finance Disclosure Regulation (SFDR). The ESG IDP Template will enhance transparency and consistency for both private companies and credit investors by providing a standard format for ESG-related information disclosure in lending.

ESG standards in Latin America

Turning to Latin American governments, the current landscape includes a variety of stages of adoption and implementation of ESG frameworks and standards. The balance of this chapter will review the approaches taken to date in Argentina, Mexico, Brazil and Chile, each of which is a party to the Paris Agreement and was a participant in COP26 and COP27. In some jurisdictions, such as Argentina and Mexico, broad policy commitments, such as adherence to the Paris Agreement, COP26 and COP27, have been adopted, and green or sustainable bond guidelines have been issued, but the more granular implementation of mandatory company reporting has not yet been developed. On the other hand, Brazil and Chile have established mandatory reporting through stock exchange rules and regulations.

Argentina is taking its first steps towards creating ESG frameworks and standards through investment-specific capital markets tools, but to date there are no mandatory company-focused reporting regimes in the country. ESG standard-setting has been undertaken by the Comisión Nacional de Valores (CNV) (the Argentine stock exchange regulatory agency), which issued regulation No. 896 in July 2021 to provide tools to expand ESG investment opportunities in financial instruments, including the Guide for Socially Responsible Investment (SRI) in the Argentine Capital Markets (SRI Guide), the Green Bond Guide and the Guide for External Review. The SRI Guide includes a definition of SRI, a guideline for SRI strategies, an analysis of the benefits of SRI and a survey of the development of SRI in Argentina. The Green Bond Guide defines, and touts the benefits of issuing, social, green and sustainable bonds and provides a step-by-step guideline for complying with International Capital Markets Association (ICMA) guidelines for such bonds. Finally, the Guide for External Review includes the key considerations about the external reviewer’s role, the benefits of the external review, and the ethical and professional standards applicable to the external reviewer.

In addition, Bolsas y Mercados Argentinos (BYMA), the securities market successor of the Buenos Aires Stock Exchange, also launched its first sustainability reporting framework in 2019, and continues to update it every year, based on the GRI standards. BYMA has included rules that require issuers of green and sustainability-linked securities to issue a sustainability report and to submit it together with the issuer´s annual accounting documentation. Finally, Argentina’s Anti-Corruption Office is working on the preparation of a second Integrity and Transparency Register for Companies and Entities (RITE II), which will cover human rights, gender and environmental policies as key factors contributing to the integrity of a company. While Argentina lacks mandatory reporting frame-works for companies, the establishment of green and sustainability-linked rules for bond issuances could help foster the further development of ESG reporting in the country. In particular, the CNV’s Guide for External Review and BYMA’s external review requirement for green and sustainable bond issuances are notable developments in the area of third-party compliance review.

In the past few years, Mexico has taken steps to adhere to and implement international ESG treaties, such as its 2015 signature of the 2030 Agenda for Sustainable Development created by the UN.[9] Additionally, the Mexican government has created specific government bodies such as the National Council of the 2030 Agenda, which is charged with analysing and establishing high-level public policies aligned with the 2030 Agenda, and the Sustainable Development Goals Specialized Technical Committee, which is responsible for monitoring all indicators and evaluating currently existing public policies with the aim to comply with SDGs.[10] Moreover, in an effort to create consensus between the different levels of government, the National Governors’ Commission created the Executive Commission for the 2030 Agenda to align the efforts made by Mexican states and municipalities on the SDGs.[11]

Mexico has not yet implemented any mandatory ESG requirements that must be met by local issuers to issue financial instruments in the local stock market. However, the two national stock exchanges, the Bolsa Mexicana de Valores (BMV) and Bolsa Institucional de Valores (BIVA), have started to implement a series of ESG standards for issuers that desire to be considered ‘ESG-compliant’.[12] The BMV has issued the ‘BMV Substantiality Guide’, a voluntary guide with the purpose of evaluating the development of strategies and level of compliance with ESG standards.[13] The self-diagnosis test (Autoevaluación del nivel de Madurez en Sustentabilidad) is promoted by the BMV and published on its website, but is voluntary. Other reports such as sustainability reports can also be found in the issuers’ portal of the BMV website. For two years, the BMV and S&P have published the S&P/BMV Total Mexico ESG Index to highlight the companies that comply with sustainability standards, based on certain sustainability evaluation criteria (Evaluación de Sustentabilidad Empresarial). Currently, 24 companies form part of this index.[14] For its part, the BIVA launched the Chief Sustainability Officer Acceleration Program, a programme that seeks to enhance and accelerate the integration of corporate sustainability in current and future issuers.[15]

On 29 April 2022, the Mexican National Banking and Securities Commission (CNBV), in collaboration with the Global Green Growth Institute (GGI), developed the ESG Self-Diagnosis Tool (Herramienta de Autodiagnóstico ASG) aimed for the participants in the Mexican financial markets.[16] This tool is of voluntary use for financial institutions to monitor its progress, know its opportunity areas and receive recommendations for improvement. CNBV will treat all information as confidential but will publish certain results on its website. Given how new this tool is, its impact has not yet been evaluated.

In March 2023, Mexico’s Ministry of Finance (Secretaría de Hacienda y Crédito Público) announced a new sustainable taxonomy to address three main challenges: climate change; gender equality and access to basic services.[17] This taxonomy is aimed to mobilise investment flows by highlighting those that reduce a socioeconomic gap and protect the environment. Though voluntary, the taxonomy is the second to be launched in Latin America and is expected to be a benchmark for other jurisdictions in the region.[18]

Meanwhile, regulators in Brazil have been responding to the push for ESG criteria in reporting and investing with mandatory reporting requirements, and have been developing what are arguably the most advanced domestic ESG frameworks and standards in the region. For example, the Brazilian Securities and Exchange Commission (CVM), the Brazilian agency that regulates publicly traded companies, already requires such companies to provide ESG information in their reference form (formulário de referência), an annual report that is filed with the CVM and requires a comprehensive overview of the publicly traded company’s business and financial condition.

CVM Resolution No. 80, which has been in force since 2022, mandates publicly traded companies to disclose in their reference form social and environmental information, such as social and environmental risk factors and practices, as well as governance information, such as corporate governance practices adopted pursuant to the Brazilian Corporate Governance Code for Publicly Traded Companies.[19]

The ESG standards outlined by the CVM were recently enhanced by CVM Resolution No. 59, which amended CVM Resolution No. 80 and, since 2 January 2023 has required the disclosure of additional ESG information, with a focus on climate and diversity standards, based on a ‘comply or explain’ model (i.e., the publicly traded company must adopt and disclose in its reference form certain practices or disclose explanations for the non-adoption of such practices).[20] New rules related to climate disclosure require publicly traded companies to report, among other things, whether their annual ESG report considers the recommendations related to climate issues of any recognised entity, whether the publicly traded company makes greenhouse gas emission inventories, and applicable risk factors related to climate change. New rules related to diversity disclosure require publicly traded companies to report the number of members of their boards of directors and finance committees organised by their self-declared gender, race or other diversity attribute, as well as specific diversity characteristics and goals of their directors and officers.

Further, on 23 December 2022, the CVM issued Resolution No. 175, which sets forth a new regulatory framework for investment funds in Brazil, and which entered into force on 2 October 2023.[21] This Resolution has certain rules applicable to ESG investment funds, including rules that seek to mitigate greenwashing risks, by establishing that a fund can only refer to ESG factors (or other similar factors, such as ‘green’, ‘social’, etc.) in its governing documents if it discloses, among other things, what the expected ESG benefits are, how the fund’s investment policy expects to generate such benefits, what methodology will be observed for the fund’s qualification as an ESG investment fund, and which entity will be responsible for certifying such qualification.

In addition, on 20 July 2023, the São Paulo stock exchange (B3 S.A. – Brasil, Bolsa, Balcão (B3)) published new rules for listed companies, including ESG rules, most of which entered into force on 19 August 2023.[22] Such rules, among other things, require certain companies listed in the B3 to adopt certain ESG practices and include additional disclosures in their reference form, based on the ‘comply or explain’ model, including information about: whether the company has appointed at least one woman and one representative of minorities as a director or officer; criteria for those appointments; and whether the company has established ESG criteria for variable compensation of directors and officers.[23]

B3 also created the corporate sustainability index (ISE B3) that is designed to measure the performance of companies listed in the B3 recognised for their commitment to corporate sustainability.[24] The ISE B3 selection process is voluntary and takes place through several steps, including through filling out a questionnaire concerning different areas of the company (i.e., human capital, corporate governance, business model and innovation, capital stock and environment).[25] The answers provided through this questionnaire are available to the general public on the ISE B3 website.[26] The score obtained by each company based on this questionnaire is weighted together with, among other things, (1) the result of the company’s performance in connection with a climate change assessment and (2) the RepRisk Index, a reputational risk metric based on ESG standards.[27] To be selected, each company must obtain a minimum score.

ESG policy developments are also on the horizon for other government and non-government Brazilian entities. For example, the Brazilian National Monetary Council (Conselho Monetário Nacional (CMN)), requires financial institutions to implement and disclose a social, environmental and climate responsibility policy.[28] Further, the Brazilian Central Bank requires certain financial institutions to disclose a social, environmental and climate risks and opportunities report.[29] In addition, in 2021, the Brazilian Association of Financial and Capital Market Institutions (ANBIMA), a non-government self-regulatory organisation that exercises regulatory authority over the financial institutions that voluntarily register with it and that in 2022 had the largest Brazilian financial institutions by assets as its members, issued rules and procedures to mitigate greenwashing risks by identifying sustainable investment funds (including rules that require asset managers to maintain on their websites guidelines, rules, and controls related to sustainable investments).[30],[31] ANBIMA’s greenwashing rules and procedures were enhanced by CVM Resolution No. 175, as described above.

A survey conducted by ANBIMA in 2021 of 250 companies indicated that sustainability has become increasingly relevant to financial and capital market institutions in Brazil, but also showed that there are still several institutions that do not disclose effective ESG practices.[32] Further, between September 2022 and October 2022, PricewaterhouseCoopers conducted a survey with 227 investors in Brazil to analyse their perception about Brazilian companies’ sustainability efforts.[33] The survey showed, among other things, that 91 per cent of such investors believe corporate disclosures contain greenwashing aspects, and 65 per cent of such investors consider it important for a corporation to disclose the relevance of sustainability for its business model.

Like Brazil, Chile’s domestic ESG frameworks are more developed than other Latin American countries. The Financial Market Commission (FMC) issued General Rule No. 385 in 2015, requiring listed companies and other issuers of publicly traded securities the obligation to complete a simple, general questionnaire (FMC Questionnaire) regarding the actions they took during the last fiscal year concerning the improvement of their corporate governance, their engagement in social responsibility activities, and their development of sustainable projects and operations.[34] The FMC Questionnaire’s main objective was to introduce to the market, and to the knowledge of the regulators, information on how the companies intended to advance the sustainable practices that the developed capital markets began to discuss some years before.

A year later, the Santiago Stock Exchange (SSE) realised sustainability in the operations of listed companies was not only a concern of the FMC, but also of the companies themselves, which were especially interested in publishing their results in this regard. Accordingly, the SSE analysed the Chilean stock market and concluded that, at the time, about 44 per cent of the issuers in the market disclosed information regarding whether their strategy, investments, projects and operations follow ESG criteria.[35] Specifically, companies disclosed the information primarily by presenting a Sustainability Report released within their mandatory annual report – in addition to the required FMC Questionnaire. Interestingly, this was before Chile had any regulations requiring issuers to disclose the ESG criteria of their investments, projects and operations in their annual reports.

Following the results found in its analysis, in 2017 the SSE published a Sustainability Reporting Guide (SR Guide) to promote the benefits of ESG criteria within the Chilean market and to inform its key players on how to prepare sustainability reports for investors. The SR Guide was based on the Model Guidance on Reporting ESG Information to Investors prepared by the United Nations Sustainable Stock Exchanges Initiative.

Since then, ESG reporting criteria has continued to grow in Chile. In 2021, the FMC issued regulations that require listed companies to disclose in their annual reports the implementation of ESG criteria as part of the organisation’s strategy and operations.[36] General Rule No. 461, issued by the FMC in November 2021, eliminated the provisions established by General Rule No. 385 and obliges listed companies and other issuers of securities to disclose their compliance with ESG criteria throughout their annual reports, establishing minimum and specific disclosure requirements.[37] As a significant departure from the previous regulation, the new General Rule No. 461 is founded upon the concept of Financial Materiality. Consequently, issuers are now mandated to disclose material information that could potentially influence investor decisions, extending beyond what is strictly prescribed by the standard. General Rule No. 461 was introduced to issuers in a phased manner based on their business and consolidated assets, with full implementation starting from 31 December 2024. Consequently, ESG criteria will be integrated into every essential aspect of the company’s annual report (company profile, corporate governance, strategy, people, business model, supplier management, and legal and regulatory compliance indicators) rather than being incorporated via a separate ‘sustainability’ report or section within their annual reports.

Further, the SSE has also been providing substantial support to issuers seeking to comply with General Standard No. 461. For example, in December 2021, the SSE and the GRI issued the Sustainability Reporting and Disclosure Guide for Chilean Issuers, to guide issuers, regardless of their size, on how to comply with the new FMC regulation and with the highest global standards.[38] In September 2022, the FMC also issued the Implementation and Supervision Guidance for Section 8.2 of General Rule No. 461, which provides guidelines for companies to facilitate the implementation of General Rule No. 461 as expected by the FMC.[39] Furthermore, all annual reports of publicly traded companies in Chile must be made available to the public on the FMC website,[40] including the requirements mandated by General Rule No. 461 on ESG criteria.

Last year, a report in the Chilean economic and business newspaper El Pulso highlighted that in the country there is currently a high level of disclosure of compliance with ESG criteria by local companies.[41] According to the report, a study by Evalueserve analysed the ESG compliance of the 30 companies that are listed in the S&P IPSA, concluding that most of them successfully anticipated the need to disclose their progress in sustainability according to international standards, the issuance of General Rule No. 461 and their need to comply with it. Specifically, the study showed that 57 per cent of S&P IPSA companies already use the SASB Standards to report compliance with ESG criteria.[42] Moreover, the study noted that Chilean companies generally have experience in using international standards; thus, the incorporation of SASB Standards – and thus the compliance with General Rule No. 461 – should not represent a significant difficulty.

In 2021, the SSE and S&P Dow Jones launched the S&P IPSA ESG Tilted Index, a new index that tracks performance of high-capitalisation Chilean companies with strong ESG profiles. The index is calculated using a weighting system that combines ESG scores and market capitalisation. Companies in the Chilean index are invited to respond to industry-specific questionnaires that evaluate a range of financially relevant sustainability criteria, such as environmental impact, labour practices and corporate governance, while also tracking ongoing negative controversies to which companies are exposed.


To comply with varying standards from IGOs, NGOs and their state governments, companies in Latin America must devote substantial resources, including but not limited to making new hires, creating new positions, hiring outside consultants and even creating entirely new departments, to ensure compliance with the relevant ESG standards. There has been, and there will continue to be, a significant learning curve. While complying with the various layers of ESG standards simultaneously can be a daunting prospect, the GRI and the ISSB are attempting to create frameworks and set standards that can dictate best practices globally.

While global standardisation is not a substitute for the hard work that countries and companies must undertake to understand ESG criteria and incorporate them into their governments and businesses, a global framework that sets a high bar will have salutary effects on the development of ESG frameworks and standards worldwide. As Latin America continues to adapt to an increasingly ESG-focused world, IGOs such as the UN, NGOs such as the GRI and ISSB, and pace-setting countries such as Brazil and Chile, will lead the way. As a closing observation, while ESG framework standardisation is a welcome and positive development, ESG reporting in Latin America will likely continue to be plagued by opacity and potential greenwashing until an independent, third-party ESG auditing requirement also becomes commonplace.


[1] Antonia Stolper is of counsel, Robert O’Leary is a partner, Yi Zhou and Marina Mendes Correa are associates, and Ana Gabriela Martínez, Maria Lucila Seco and José Manuel Llamazales are visiting attorneys at Shearman & Sterling LLP.

[3] See The SDG Compass | UN Global Compact, and Making Global Goals Local Business | UN Global Compact.

[4] See GRI - Sector Program (

[5] See ‘ISSB communicates plans to build on SASB’s industry-based Standards and leverage SASB’s industry-based approach to standards development’, IFRS, 31 March 2022, available at

[6] See ‘COP27 climate summit’s sponsorship by Coca-Cola condemned as “greenwash”‘, Green, Graeme and McVeigh, Karen, 4 October 2022, environment/2022/oct/04/cop27-climate-summit-sponsorship-polluter-coca-cola-condemned-as-greenwash.

[7] ‘A New U.N. Report at COP27 Takes Aim at “Greenwashing”’, Time; ‘COP27 delegates rubbed shoulders with energy executives ready to cut deals’, Financial Times (

[8] See ‘ESG Reporting: Asset Managers Express Divergent View’, Stewart, Lindsey, The Harvard Law School Forum on Corporate Governance, 18 October 2022, available at https://

[9] See ‘Transforming our world: the 2030 Agenda for Sustainable Development’, United Nations Department of Economic and Social Affairs, available at

[10] See ‘National Council for the 2030 Agenda for Sustainable Development’, Mexican Presidency, 26 April 2017, available at

[11] See ‘Instala Conago la Comisión Ejecutiva para el Cumplimiento de la Agenda 2030 para el Desarrollo Sustentable’, Mexican Presidency, 15 June 2017, available at

[12] ESG compliant issuers may have access to preferential terms and market conditions.

[14] See ‘S&P/BMV Total Mexico ESG Index (MXN)’, S&P Dow Jones Indices, 31 July 2023, available at file:///C:/Users/am28205/Downloads/fs-sp-bmv-total-mexico-esg-index-mxn.pdf.

[15] See ‘BIVA impulsa la adopción de principios ambientales, sociales y de gobernanza con un programa de aceleración’, Business Insider México, 13 June 2022, available at https://

[16] See ‘Herramiento de autodiagnóstico ASG y riesgos relacionados con el clima’, GGGI, available at

[17] See ‘Taxonomía Sostenible de Mexico’, Gobierno de México, 16 March 2023, available at

[18] See ‘A new Taxonomy is born: insights on the Mexican Sustainable Taxonomy’, Natixis, 10 May 2023, available at

[20] See CVM Resolution No. 59 at resol059.html.

[22] The new rules for listed companies were published by B3 on 20 July 2023 through the Oficial Notice (Ofício Circular) No. 002/2023-VPE, which is available at

[23] ESG rules are described in Exhibit B (Anexo B – Medidas ASG) of the B3 rules for listed companies, which are available at

[24] See more information about the ISE B3 at

[25] See more information about the 2023 ISE B3 questionnaire at Visao_geral_do_Questionario_ISE_B3_2023-vf07jul2023.pdf.

[26] See the answers provided by companies in 2022 and 2023 though the ISE B3 questionnaire at

[28] See the CMN Resolution No. 4,945, which requires financial institutions to implement and disclose a social, environmental and climate responsibility policy, at

[29] See the BCB Resolution No. 139, which requires certain financial institutions to disclose a social, environmental and climate risks and opportunities report, at

[30] The five largest Brazilian financial institutions by assets in 2021 and 2022 according to the Brazilian Central Bank (see are ANBIMA members (see

[32] See ‘ESG Guide II – ESG Aspects for asset managers and investment funds’, ANBIMA 23 December 2021, available at

[33] See ‘PwC’s Global Investor Survey 2022 – Gaps ESG’ at

[34] The Financial Market Commission is a decentralised, technical public service related to the Ministry of Finance, whose functions are to regulate and oversee the Chilean financial market.

[35] According to the Santiago Stock Exchange, the 44 per cent represents 25 of the 57 issuers on the IGPA (Chilean general stock price index, composed of most stocks and reviewed annually) as of year-end 2015 with a free-float adjusted market capitalisation of more than US$100 million.

[36] See the FMC press release regarding the issuance of the General Rule No. 461 at https://

[37] See General Rule No. 461 at

[38] See Relacionado/ Guia%20de%20Reporte%20de%20Sostenibilidad%20Chile_GRI%20y%20Bolsa%20de%20 Santiago.pdf.

[39] Section 8.2 of General Rule No. 461 is that section of the rule that specifically mandates the reporting of sustainability metrics in the annual report. Index that includes the 30 companies with the largest capitalisation in the Chilean stock market.

[42] SASB standards, developed by the Sustainability Accounting Standards Board and used as a disclosure reference by General Rule No. 461, are principles to guide the disclosure of financially material sustainability information by companies to their investors. These standards identify the subset of environmental, social and governance issues most relevant to financial performance in each industry.


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