Sustainable Finance Regulation in the Americas: A Comparative Analysis
The private sector in the Americas should brace for more stringent regulation on sustainable finance. The region is catching up with Europe and Asia, with 156 policies enacted across the five G-20 members – the US, Canada, Brazil, Mexico and Argentina.
Most of these policies target banks, asset owners and corporations, and involve voluntary or mandatory measures on ESG classification, climate risk disclosure and stress testing.
The US is the largest issuer of sustainable debt in the region, accounting for 81% of the $1.4 trillion total. However, it has not set a clear policy direction for its peers. Its main ESG disclosure policy is stuck in regulatory limbo and 16 states have introduced anti-ESG policies, which could increase their funding costs. A pilot program for climate-risk stress testing is the only bright spot for the US.
The situation may worsen before it improves.
Most of these policies target banks, asset owners and corporations, and involve voluntary or mandatory measures on ESG classification, climate risk disclosure and stress testing.
The US is the largest issuer of sustainable debt in the region, accounting for 81% of the $1.4 trillion total. However, it has not set a clear policy direction for its peers. Its main ESG disclosure policy is stuck in regulatory limbo and 16 states have introduced anti-ESG policies, which could increase their funding costs. A pilot program for climate-risk stress testing is the only bright spot for the US.
The situation may worsen before it improves.
- Brazil leads the region in sustainable finance policy, with 38 policies affecting corporations and banks. Banks with assets exceeding 0.1% of the country’s GDP (which are 473 as of now) must report their climate change risks and opportunities, while 277 pension funds with a total of $240 billion of assets must report ESG factors. President Lula da Silva’s strong track record on climate issues suggests more rigorous regulation in the future.
- Canada’s 26 sustainable finance policies may seem impressive, but only eight of them are compulsory. However, the country deserves attention – a roadmap proposes a green taxonomy to be fully implemented by 2025, with mandatory climate risk disclosure also in the works that will affect over 3,400 listed companies.
- Mexico has only nine sustainable finance policies, but it performs well relative to its size. Pension funds must incorporate ESG into their investment decisions. In early 2023, the country also developed a green taxonomy, following the European Union and adding social factors.
Argentina has been gaining momentum, with 11 of its 12 sustainable finance policies being passed since 2019. The most notable one is a regulation requiring funds to align 75% of their investments with their name.
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