Executive summary

This report presents an overview of the main trends and issues related to sustainability policies and practices for corporate governance in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, and Peru. Through key policy recommendations, its objective is to support the development of the region's frameworks for disclosure, the responsibilities of company boards of directors, and shareholder rights in alignment with the G20/OECD Principles of Corporate Governance (G20/OECD Principles). This report benefits from two OECD surveys conducted with 275 Latin American companies comprising around half of the region's market capitalisation and 521 asset managers investing more than USD 1.3 trillion in the region. Likewise, this report presents for the first time a dataset that contains sustainability information for up to 13 800 listed companies with a total of USD 113 trillion market capitalisation listed on 83 markets in 2021.

Latin America's capital market landscape. In 2021, there were 1 088 listed companies in the Latin American stock markets with a total market capitalisation of USD 1 602 billion. From 2000 to 2021, almost 700 new listings and 1 049 delistings took place in the Latin American public equity markets. Total market capitalisation to GDP in the region ranges from 3% in Costa Rica to 50% in Brazil, which is below the OECD average at 150%.

Private corporations are the most important category of equity owners in Argentina, Brazil, Chile and Peru. Distinctively, strategic individuals rank first in Mexico holding 34% of the listed equity, while in Colombia the public sector holds almost 40% of the listed equity. Non-domestic institutional investors hold a larger equity share than domestic ones in Argentina, Brazil, Chile and Mexico. The average combined holdings of the top three shareholders (ownership concentration) in listed companies rank from 56% in Mexico to 81% in Peru.

Latin American companies raised USD 25.6 billion in green, social and sustainability (GSS) corporate bonds in 2021, with more than 90% of this amount issued by non-financial companies. Chile (USD 14.8 billion) and Mexico (USD 13 billion) have had the most active markets for GSS corporate bonds from 2013 to 2022. The activity has decreased to pre-COVID levels in 2022 in the region, with only USD 1.9 billion raised via GSS bonds by non-financial companies as of October. Basic materials and utilities represent almost 30% of the raised funds in Latin America, differing from the global trend where half of the GSS bonds were issued by financial companies between 2013 and 2022. In Latin America, investment funds labelled as “ESG” reached USD 4 billion of assets under management in 2021, against USD 0.8 billion in 2020.

Sustainability disclosure. Most asset managers investing in Latin America review their portfolio companies' sustainability disclosure. For large asset managers, 47% report that they review the sustainability disclosure from all investee companies and 26% that they do so only for specific industries. While not every country requires listed companies to disclose an annual sustainability report, companies representing 83% of the region's market capitalisation disclose sustainability information. Among them, more than two-thirds of companies by market capitalisation hire a third party to conduct an external assurance of the report (typically by an audit firm and with a limited level of assurance). The GRI Standards and SASB Standards are the most-often used sustainability reporting frameworks by Latin American listed companies.

Market participants in Latin America mention the need to make sustainability disclosure more reliable, consistent, and comparable. Most asset managers and listed companies would support mandatory corporate sustainability disclosure (89% of support from large asset managers and 92% from large companies). Likewise, both asset managers and companies endorse the adoption of an international sustainability reporting standard for listed companies (71% of support from large asset managers and 70% from large companies).

For large asset managers investing in Latin America, water and wastewater management, climate change, and human capital have been the main engagement priorities with companies. In shareholder meetings and boards of directors, the top priorities have been human capital, data security and customer privacy, human rights, and climate change. In Latin America, climate change risks are more relevant than in other regions, being financially material for 71% of companies by market capitalisation (6 percentage points above the global average).

The responsibility of boards. Chile, Colombia, Costa Rica, Mexico, and Peru adhere to what some have named the “shareholder primacy” view. While different legal systems have their particularities, directors in those countries would typically need to consider only shareholders’ financial interests while complying with the applicable law and ethical standards. In Brazil, company law also establishes that directors would have to consider stakeholders’ interests and the social and environmental stakes of a company’s activity. In the region, only Brazil, Mexico and Peru have adopted the Business Judgement Rule or a similar safe harbour.

In Latin America, executive compensation plans have performance-based incentives in 59% of the companies by market capitalisation, and compensation policy is linked to sustainability matters in 27% of them. Additionally, 44% of the Latin American companies have a board-level committee responsible for sustainability matters, which is slightly above the European Union average at 42%.

Shareholder rights and engagement. A majority of asset managers in Latin America consider sustainability matters both when investing and engaging with companies, and when voting in shareholder meetings (89% of large asset managers when making investment decisions). Likewise, most asset managers investing in the region declared that they would consider filing or co-filing an ESG-related shareholder resolution. Either due to shareholder requests or proactively, companies that account for 58% of the region's market capitalisation have publicly disclosed GHG emissions targets, which is notably below the share in the United Kingdom at 84% and in the European Union at 81%.

Corporate governance frameworks. All surveyed Latin American countries either require or recommend the disclosure of sustainability information by listed companies. Brazil and Colombia have a greater focus on climate-related matters, whereas others require or recommend the disclosure of a great number of sustainability matters. Notably, Chile, Colombia, Costa Rica, Mexico and Peru have adopted either a requirement or a recommendation for companies to disclose verifiable metrics to allow investors to assess the credibility and progress toward meeting an announced sustainability-related goal.

Among the countries that have chosen a single sustainability accounting standard for all listed companies, Chile and Peru have decided to develop a local standard while Colombia has adopted the SASB Standards and TCFD’s Recommendations. No surveyed Latin American jurisdiction currently requires nor recommends the external assurance of sustainability information.