Sustainability and Climate Change-related Risk Disclosure in Latin America and the Caribbean: Toward Transparency in Green Financial Markets

This paper analyzes the importance of adopting standards for reporting information that relates to sustainability and climate change-related risks in the financial markets. The sustainability rules of the International Financial Reporting Standards (IFRS) FoundationS1 (General requirements for disclosure of sustainability-related information) and S2 (Climate-related disclosures) issued by the International Sustainability Standards Board (ISSB), highlight the need for the standardization, comparability, measurement, and reliability of information when disclosing such risks. However, their implementation poses challenges for public policymakers in Latin America and the Caribbean (LAC). In addition to the new standard, it reviews voluntary standards, such as those of the Global Reporting Initiative (GRI), an entity that collaborated in writing this paper. It analyzes information from surveys carried out among issuers of securities, institutional investors, market infrastructures and financial regulators and supervisors in order to evaluate the state of disclosure in the region. Finally, the paper advances some public policy recommendations, which include improving institutional capacity from at least three perspectives: developing areas dedicated to sustainability and climate-related risks, improving talent in these areas, and technology. This publication seeks to support LAC countries in their transition toward adopting information reporting standards for sustainability and its associated risks, including climate change, which would enable the region to be more assertive in its financial instrument risk assessment. It is hoped that market growth can gradually be encouraged toward development that is sustainable, measurable, comparable, auditable, and valuable for all actors in the LAC capital markets.