ESG: CNV Further Boosts Socially Responsible Investment

Throughout the last few years, the international financial community has become more and more aware of the relevance of Environmental, Social and Governance (“ESG”) issues and of the need to include these ESG factors in their investment decisions. ESG relevance during investment processes is growing rapidly and many important economic agents are considering it a cornerstone for the development of more sustainable economies.

 

Regulators have also been creating different incentives and standards consistent with that. And the Argentine Securities and Exchange Commission (“CNV”) has not been an exception. The CNV has recently taken a new step in that direction by enacting Regulation No. 896, which adds new guidelines for ESG investment in Argentina.

 

When issuing this regulation, the CNV expressly considered that the inclusion of ESG factors in the investment decision process represents a significant contribution to the achievement of the United Nations Sustainable Development Goals.

 

In Regulation No. 896, the CNV included three Sustainable Guides (the “Guides”) that are relevant for a Socially Responsible Investment (“SRI”): (a) a Guide for Socially Responsible Investment in the Argentine Capital Market (the “SRI Guide”), (b) a Guide for the Issuance of Social, Green and Sustainable Bonds (the “Green Bond Guide”), and (c) a Guide for External Reviews of Green, Social, Sustainability and Sustainability-Linked Bonds  (the “Guide for External Review”).

 

These Guides are not mandatory but are aimed at: (a) providing a theoretical framework and common language for adding clarity to capital markets-related concepts, (b) being a source of consultation and orientation on this matter, and (c) creating awareness and communicating different aspects connected to sustainable finance.

 

An SRI process certainly requires giving more weight to extra-financial considerations in the investment process for a more stable market. The CNV is stressing the need to build technical capabilities in ESG factors in the Argentine market to achieve this goal; thus, it introduced certain analytical tools to assess the ESG factors involved in investments.

 

The SRI Guide includes a definition of SRI, a guideline for SRI strategies, and an analysis of the benefits of SRI. The SRI Guide also includes a survey of the devolvement of SRI in Argentina.

 

The Green Bond Guide includes a definition of the Social, Green and Sustainable Bonds, the benefits of issuing Social, Green and Sustainable Bonds, and a step-by-step guideline for complying with ICMA guidelines for these bonds.

 

Finally, the Guide for External Review includes a guideline for the issuance of green bonds in Argentina, 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.

 

With these Guides, the CNV grants markets, rating agencies, issuers and investors a set of definitions and good practices for them to use when issuing Green Bonds and navigating the SRI  process.

 

The Guidelines are a continuation of the CNV’s policy of fostering SRI investment, which is preceded by last year’s Regulation No. 788 that focused on green bonds. The CNV has made it clear that it intends to continue to create the necessary legal and conceptual infrastructure for SRI in Argentina.

 

International business trends demonstrate that SRI processes have become important not only in connection with investment decision opportunities, but also with company road shows, reporting, marketing and supervision. ESG factors will continue to increase the obligations and benefits of market players —and that, in turn, will also impact the standards and size of ESG panels.

It is reasonable to expect more regulations in connection with these ESG-related factors.