BMV ‘greens’ without guarantee that issuers comply with ESG

June 14, 2022 | 5:00 a.m.

The efforts of Mexican Stock Exchange (BMV) to boost green emissions are faced with the challenge that companies actually meet the criteria Environmental, Social and Governance (ESG) that are drawn

Although the placements of theme bonuses in the BMV have grown in recent years, this does not guarantee that best practices are really being carried out, analysts agreed.

The lightness with which stock exchanges and underwriters grant ESG certification is counterproductive when looking for a system that really encourages the improvement of the private sector and self-regulation in this type of issue

said Amin Vera, independent economic analysts.

For the analyst, the adoption of ESG criteria is a way that makes it easier for companies to access preferential rates in the debt placement or the authorization to be part of institutional funds, and it is difficult to make an evaluation of the commitments that they establish.

As an example is the case of Coca-Cola Femsawhich has accessed financing through thematic bonds, despite being constantly singled out for the amount of water used in its production.

Mexico Group Y Royal Credit are other issuers that are integrated into indices linked to ESG criteria. The production processes of the mining German Larrea are highly polluting, while Crédito Real is being targeted for administrative mismanagement that led to the non-payment of an international bond in February.

Benjamin Alvarez, stock analyst at CI Bank, He commented that companies must take care of the image they project towards the population and not improving their practices makes them less competitive.

Although most continue to have an environmental impact, we see progress in the strategies of some, especially in their commitment to equality and human rights.

said the CI Bank analyst.

Also read: The farce of green investments

Supervision, a pending issue

Nalleli Barajas, deputy director of sustainability of the BMV, recognized that even with the growing adoption of ESG criteria, more work must be done in the supervision process.

For now, everything is in a set of recommendations and the next organic step has to be that the entities that supervise can take action based on these indicators.

mentioned in an interview.

He explained that the BMV does not have the power to monitor the companies’ compliance, since it only provides the infrastructure for debt placements, which are reviewed by external institutions such as rating agencies.

For this reason, it is also necessary to government regulators that punish the infractions of the broadcasters, as well as the development of an ecosystem of NGOs and observatories dedicated to the continuous evaluation of risks, according to Vera.

It may interest you: Companies fear fiscal transparency to go public

The risks for companies

More and more companies are committing to address environmental and social impact issues to avoid reputational damage and market share or funding risks.

Not implementing strategies implies that large investors such as Retirement Savings Fund Administrators (Afores) have no interest in funding the companies and that the capital outflow causes the market value to fall.

Now anyone can paint their annual report green; however, there are more and more barriers to that happening. The worst thing that can happen to you as a company is that they do not invest in you or lose value because you are not doing things correctly

Barajas commented.

As of this year, the total investments of the Afores must be guided by ESG criteria, in a mandatory manner, in accordance with what the National Commission of the Retirement Savings System (Consar) requested them since 2019.

You can read: Afores will be the spearhead for companies to report more ESG investments

More green placements in 2023

At the eleventh Forum of Issuers, the general director of the BMV, Jose-Oriol Boschsaid that long-term debt placements in ESG terms will represent 50% of total issuances in 2023.

Since the launch of the first thematic bond on the BMV to date, 94,000 million pesos have been raised through this type of instrument. Of the total, 47% corresponds to sustainable bonds, 27% green, 15% linked to sustainability and the rest to social issues.

For this year it is estimated that 37% of the total placements take these criteria into consideration, Bosch projected in another event.

Between June and August, it is expected that 70,000 million pesos will be issued, of which 35% will be thematic bonds. Among the companies that will make placements are Arca Continental, Cetelem, BBVA, Grupo Herdez, Invex, Actinver, the government of the State of Mexico, Auneti, Megacable, Fonacot and Toyota Financial Service.

Continue reading: BMV approaches five years without IPOs

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