ESG: Entering the OECD Could Make Argentina Bolster Sustainable Financing Policies

On Tuesday, January 25, the Organization for Economic Cooperation, and Development (OECD) invited Argentina and five other countries (Brazil, Croatia, Peru, Romania, and Bulgaria) to discuss entering the organization, which is composed of 38 countries. Among the requirements for entering, countries will be required to support the growth of a sustainable economy. Thus, Argentina is expected to adopt environmental, social and governance (ESG) investment approaches in the coming years.

Requirements to join the OECD

As explained by the Argentine Ministry of Foreign Affairs, the OECD's efforts are focused on identifying the factors that lead to positive economic, social, and environmental changes, for which it sets international standards. This organization describes itself as an "organization that helps governments face the economic, social and governance challenges of a globalized economy". The Argentine Ministry of Foreign Affairs assured that Argentina's participation in the OECD will enable the country to comply more effectively and faster with its own goals in politics and these other areas. As an example, it mentioned the professionalization and transparency of public procurement systems, the promotion of national innovation systems, the fight against corruption, and the implementation of more competitive education plans, among other relevant areas.

As indicated by the OECD a few days ago, entering the organization will be subject to individual assessments. Among other commitments, countries will be required to support the growth of a sustainable economy, reduce poverty in line with the 2030 Agenda and Sustainable Development Goals, protect the environment, and improve the lives of all, whether they are members of the OECD.

The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as part of a universal call to action to end poverty, protect the planet and ensure that by 2030 all people enjoy peace and prosperity. 

On the other hand, economic policies will have to be aligned with the Paris Agreement’s objectives, specifically with its goal of reaching zero greenhouse gas emissions by 2050 through significant emission reductions, encouraged by both public and private investments.

The OECD states its fundamental that each country adopts and implements public policies and actions in line with its climate objectives, including the prevention of biodiversity extinction and deforestation, as agreed during COP26 in Glasglow.

OECD: an organization with objectives aligned with ESG principles

Forms of sustainable financing have grown rapidly in recent years, as a growing number of institutional investors and funds now incorporate various ESG investing approaches. This growth has been spurred by shifts in the demand across the finance ecosystem, driven both by the search for better long-term financial value, and a pursuit of better alignment with values. The OECD has elaborated various works on the importance of countries adopting measures in line with ESG principles.

In its report called "ESG Investing: Practices, Progress, and Challenges," the OECD stated that while earlier approaches used exclusionary screening and value judgments to shape their investment decisions, ESG investing has been spurred by shifts in the demand across the finance ecosystem, driven by both the search for better long-term financial value, and the pursuit of better alignment with values.

Amid public sector efforts to achieve the Paris Climate Agreement, the OECD believes that financial markets will play a key role in supporting an orderly transition to low-carbon economies and that there has been strong growth in investor use of ESG and climate-aligned approaches.

The OECD has noted in its articles that multiple surveys suggest that institutional investors and professional asset managers seek to use ESG principles primarily to compete on improving risk-adjusted returns and risk management. A survey of 120 institutional investors by Morgan Stanley concluded that 70% have integrated sustainable investment criteria into their decision-making, and an additional 14% are actively considering it (Morgan Stanley (2018), “Sustainable Investment Asset Owner Survey.)

In this way, the OECD proposes that countries (not only members) adopt economic measures with a more sustainable environmental approach.