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Many of us have life insurance or retirement funds to which we allocate a portion of our salary each month, but we rarely know how those funds are being invested. We simply trust that, when the time comes to need them, the resources will be available and that, in some way, the financial system invests them, but we do not know in what or under what policies or regulations it does so.
In fact, at the end of the COP28 framework resolution is a paragraph that calls to action for governments, banks, investors and other financial actors to use climate disclosure as a fundamental step towards access to climate finance in all regions and sectors, that is, that users clearly know what is behind their savings and investments. This call represents a global recognition of the urgent need to coordinate efforts with private entities to expedite the constant creation of new and innovative sources of financing for climate action.
For this and more reasons, the results of the Latin American Climate Asset Disclosure Initiative -Lacadi, in conjunction with experts from the International Sustainability Standards Board -ISSB, on the progress of 48 institutional investors (nine pension funds, 17 insurance companies and 22 asset managers) from Colombia, Mexico and Peru, in the so-called LACADI 2023 Ranking on the status of implementation of international recommendations on climate disclosure, are important for Identify the needs for capacity and support to ensure that Latin American investors make visible the risks and opportunities that climate change presents in their portfolios. In Colombia, the participants in the ranking represent 21% of pension and insurance assets, while in Mexico they reach 19%, and in Peru, 90% of reported assets.
According to the findings of the ranking, 78% of pension fund administrators (AFP), 35% of insurers and 68% of other asset managers in Colombia, Mexico and Peru do not consider climate risks in their financial planning. In a world where the impacts of climate change are increasingly evident, the destination of our investments and the responsibility of these financial actors should be priority concerns, both because of the financial risks that the effects of the climate crisis pose, and because of the opportunities which brings a scenario such as portfolio decarbonization.
In Latin America, companies and investors have been preparing for these outreach efforts; However, this ranking identifies that the information presented by the region's financial sector is not sufficiently unified, traceable and affordable; adding the fact that it cannot be found by the artificial intelligence search engines of the main analysts because the Spanish language is not yet compatible with them. Achieving better representation of the efforts of these regional actors at a global level could redirect and increase resources allocated to climate change, identify capacities where support is required and increase confidence in investments, supporting the development of new markets and diversifying the economy.
Understanding the challenges of positioning both the progress and the training and support needs for financial actors in Latin America, the flow of information from the region to global instances should be based on a strategy that manages to draw attention to the facts that The financial and business sectors are making important disclosure efforts under international standards, there are still large gaps in the incorporation of climate risks in investor strategies and the Latin American region will be seen by the international community only if it focuses its efforts on work in unity.
Almost 10 years after the adoption of the Paris Agreement, the time for pedagogy has passed and it is necessary to enter forcefully into the moment of proactive proposals from businessmen and investors, and also coherent regulations to move towards carbon-neutral economies and resilient. For this, we must work on three critical points:
Work on the definition of new clean, sustainable and decarbonized investment portfolios as an aspect that tangibly impacts society.
Activate sustainable investment opportunities and alternatives that ensure profitability with the development of specific mechanisms and pathways that create markets of alternative and sustainable opportunities.
Promote a coherent and achievable regulatory environment. There is no stronger trigger than regulation; However, in the case of climate disclosures, joint work with those regulated is key and the road ahead is long.
Now that we know this, all of us, whether as pensioners, policyholders or investors, or financial consumers in general, have the power to drive significant change. We can demand that the financial institutions responsible for our funds invest in a secure future. We must ensure that our resources are not trapped in outdated investments and that they consider both the risks and opportunities associated with the transition to renewable energy and climate sustainable technologies. It is time to place Latin America at the forefront of the climate fight, and this includes the financial sector.
Margarita Gutiérrez Arias
is director of the LACADI initiative, implemented by the Transforma thinking center.