Tag: tcfd

In the framework of the Latin American Climate Assets Disclosure Initiative (LACADI), the report “Barriers to the inclusion of Climate Change opportunities and risks in financial sector investment decisions in Mexico” was published in July 2022.

This document serves as a fundamental reference for institutional investors to recognise the current state of the climate issue, take the opportunity to strengthen their capacities and focus their efforts on including climate change variables in their investment decisions.

The LACADI team identified seven main barriers to incorporating the analysis and information about climate change risks and opportunities into investment decisions in Mexico:

  1. Lack of climate information for investment decision-making.
  2. Lack of standardisation of climate information and available Environmental, Social and Governance (ESG) indicators.
  3. Lack of technical capacity of institutional investors to integrate climate factors into investment decisions.
  4. Regulatory vacuum and legal uncertainty for effective climate disclosure.
  5. Shortage in the supply of projects and assets, as there is a large gap in demand for well-structured projects under certain criteria that are financially viable and attractive to institutional investors.
  6. The structure, size and shape of the financial market. The majority of institutional investors’ investments in the private sector are concentrated in a very small number of Mexican companies, which affects the diversification of investment portfolios. The ambition of the federal agenda and the country’s energy policies make it impossible for institutional investors to address one of the biggest areas of opportunity for the transition to a low-carbon economy in a cost-effective manner.
  7. Lack of definition of a national sustainable taxonomy. There is distrust of labelled financial products because of the arbitrariness of how and by whom the label is defined.

Once the relationship between the sector’s business model and its potential to contribute to climate action is understood, institutional investors will undoubtedly be powerful agents of change.

The full report, conclusions and analysis are available here.

On 1 July 2022, the first capacity-building workshop of the Latin American Climate Assets Disclosure Initiative (LACADI) took place, in which climate disclosure was presented as a tool to identify and manage climate change opportunities and risks.

One of the most important observations of Mark Lewis, founding member of the Task Force on Climate-related Financial Disclosures (TCFD), was that transition risks are crucial for companies and should be considered in all investment decisions. He concluded that companies that do not show their strategic vision for the future, based on TCFD recommendations, should be a red flag for investors.

Taller de capacitación © Andrea Carolina Gutiérrez Henao

The panel discussion on the barriers faced by institutional investors in Mexico to include climate risks and opportunities in their investment decisions included participation from Marité Chavira from Citibanamex, Alejandro Bujanos from Afore Sura, Juan Carlos Belasteguigoitia from Consorcio TCFD Mexico and Eric Osio Cerón from the National Commission of the Retirement Savings System (CONSAR). They highlighted the importance of including climate disclosure and sustainability strategy in all areas of the organisation; the objective of the Afores is not only to guarantee the best return but also the best pension, guaranteeing a better planet; and the importance of investments producing change within the companies receiving capital to reduce their Greenhouse Gas (GHG) emissions. Participants also stressed the need for regulation to establish a guideline or baseline for compliance.

Celine Tapia, from CDP, explained that for financial companies the most important emissions to consider are the emissions they finance with their investments.

One of the main conclusions of the workshop was the importance of starting to share the advances in the processes and mechanisms currently in place within the institutions, as climate disclosure is a process of continuous improvement. To this end, LACADI will work with Afore and insurance companies to identify the status of their disclosure practices and generate recommendations and roadmaps for them to advance in the implementation of the TCFD recommendations.

Asistentes durante el coffee break © Andrea Carolina Gutiérrez Henao

We must create an environment that encourages investment in nature. Recognising the importance that the loss of biodiversity represents for the financial system, the Bank of Mexico and the Center for Latin American Monetary Studies (CEMLA) organised the conference “Biodiversity and Environmental Challenges for the Financial System” from November 30 to December 2.

During the conferences, the dependence of the financial sector on natural capital was greatly highlighted. During the fifth panel, “Success Cases and Opportunities in Financing Land Use, Sustainable Agriculture and Reforestation” Patricia Moles, specialist in Green Finance of the Bank of Mexico, acted as moderator.

Andrew Mitchel, founder and director of Global Canopy, mentioned that there is a lack of interest in agriculture on behalf of the financing areas; however, he stressed that without it, great economic problems would be generated. Regarding financing for this sector, he stated: “To change from a negative climate scenario to a positive one, investment from the private sector is necessary.”

Paulina Campos, director of the GIZ Mexico Biodiversity Programme, stated that, despite the fact that in certain regions of Mexico “there is a high investment potential to reduce water stress; the main challenge is that farmers do not have access to credits, nor do they know the procedure to obtain them.” Consequently, she mentioned that work is being done from the biodiversity programme to support farmers to access credits for irrigation systems. She concluded by assuring that these types of initiatives within the financial sector have a great positive impact when companies have a long-term plan in a given region and understand that the problem is systemic, and that they can play an important regional role regarding sustainability.

To conclude, working on clear taxonomies for biodiversity investments is essential. This will provide companies and investors with certainty about what is being financed. For this, the Taskforce on Nature-related Financial Disclosures (TNFD) has provided a framework for assessing impacts on nature.

All the forums held at this conference are recorded on Banxico’s  YouTube channel.