International sustainable reporting standards may seem like a worthy effort to corral companies into fighting climate change, but ESG reporting could be an economic lifeline for countries like Chile.
Its Financial Market Commission (CMF – Comisión para el Mercado Financiero) has issued a General Rule No 461 telling non-financial listed companies with total consolidated assets exceeding 20 million units of Unidad de Fomento (UF) – a stable measure of value worth $691m in February 2023 – to issue ESG reports from March 2023.
‘Chile is a small, open economy and we need foreign investors, so we need a standard to get investors’
Smaller listed non-financial companies worth UF1 million ($34.5m) must file ESG reports from March 2024. And financial companies, including banks, insurers and exchanges, take their turn from March 2025.
These reports will follow the principles laid down in guidance from the Sustainability Accounting Standards Board (SASB) – now integrated into the International Sustainability Standards Board (ISSB) – the Task Force on Climate Related Financial Disclosure (TFCD), whose advice has informed ISSB standards, and guidance from the GRI (Global Reporting Initiative).
Speaking at an ISSB symposium in Montréal, Canada, CMF commissioner Bernardita Piedrabuena Keymer said her agency understood that solid sustainability reporting will be a prerequisite of securing adequate foreign capital: ‘The main driver to issue this rule was that Chile is a small, open economy and we need foreign investors, so we need a standard to get investors… to invest in our economy. We cannot survive without foreign investors.’
She said the CMF was particularly determined to prevent greenwashing by Chilean companies: ‘We don’t ask for any external assurance, but we have a big… penalty for enterprises who do not fulfil their obligation, and also they can get a criminal penalty if they give wrong information on purpose to the market.’
Mining and metals
Of key concern to Chile is the future of its mining and metals sector, which accounts for half the country’s exports by value and comprises 11% of its GDP, according to the US International Trade Administration. That is why non-financial companies are moving first on sustainability reporting in Chile, Keymer told AB.
At present Chile’s mining and metals companies ‘don’t have a problem securing finance’, but in the future they may need to demonstrate how they are ‘conscious about their influence on the environment’.
She said: ‘We will ask them, if they issue securities, to fulfil sustainability reporting steps to help them to be more prepared for what foreign investors will require.’ Aware that it may be ISSB standard-based information, there is a risk that if Chilean companies ‘don’t have it, they may have to pay a higher interest rate’ or capital just might not be available.
‘We want to get the right terminology and try to build capacity before changing any standards’
As a result, the CMF will be looking closely at the final ISSB S1 and S2 standards when they are released to see if Chile’s national requirements on sustainability reporting will need updating, given they have been based on past GRI, SASB and TFCD guidance.
However, with the latter two sources very influential in building ISSB S1 and S2, there would be no rush to react, said Keymer, as S2’s Appendix B has a section on metals and mining that requires reporting on greenhouse gas emissions, water and energy management.
Keymer stressed the need for regulatory calm, given that Chilean reporting standards are new and companies are having to adapt their reporting accordingly.
‘We have to analyse and look at our experience. We may adopt ISSB,’ she said, ‘but this might be in the medium term. We want to get the right terminology and try to build capacity before changing any standards. It depends on the changes required, and how they can affect costs for the firms, how they change their accounting.’
Reporting capacity would have to be sufficient to cope with such change. ‘It would depend on capabilities in the country,’ Keymer said. Her agency and the Chilean government want to build sustainability reporting capacity, with the CMF looking for external development institutions to help train accountants and other reporting staff so that companies comply with the new law.
A key supporter, said Keymer, has been the Santiago Stock Exchange, which now requires integrated reporting from listed companies and is overseeing the new law’s implementation.
That support on capacity could be especially important when the financial sector starts reporting, because banks, investors and insurers will need to take note of their clients’ environmental performance, which in Chile’s case will indirectly impose sustainability reporting requirements on many SMEs, said Keymer.
SMEs account for more than 98.6% of Chilean enterprises, according to the OECD, with 75.5% of all enterprises being microenterprises, 20.2% being small and only 2.9% medium-sized. These smaller firms will ‘have to provide information on risk to the banks… to achieve financing,’ said Keymer.
The focus on metal and mining is key – despite being few, large firms such as these account for 86.9% of total in Chile, according to the OECD.
And this is the sector whose sustainability the CMF wants demonstrated by reporting to the global financial community. Ultimately, ‘the goal is to enable Chile to get more financial foreign investment’, said Keymer.
Fortunately, as sustainability reporting expands and deepens, the country’s mining and metals sector is particularly well placed to demonstrate its environmental credentials – after all, it’s the world’s second-largest producer (22% of global production) of lithium, a key electric car battery material.
Read ACCA’s article ISSB approves first sustainability standards