Mandatory ESG reporting in Mexico? Not really, not yet

This week I want to discuss mandatory ESG disclosure. There have been debates globally on whether companies and investors should be forced by regulation to disclose ESG topics through integrated, sustainability, or stewardship reports. We are still far from having a global standard on this, but as more and more investors push for more and better ESG disclosures from all publicly funded organizations (be it through debt or equity), there may be a moment when regulation catches up and makes it a standard.

There are a few examples around the world where sustainability reporting (to a certain degree) is mandatory:

1. The UK: listed companies must disclose their GHG emissions data, diversity and humans right data, and some of them Corporate Governance principles management strategies.
2. The US: listed companies must disclose their environmental compliance expenses.
3. India: the top 100 listed companies must publish annual Business Responsibility Reports.

… and there is certainly support from standard setting organizations, such as GRI, to make sustainability reporting mandatory arguing that many companies globally already do it anyway (see this report from KPMG on sustainability reporting trends).

So… why are regulators not convinced yet?

Mandatory reporting can mean many different things. You can force companies to report any sustainability data they can (and by doing this you would certainly have zero consistency in the market), or you can force companies to all report the same indicators (and you gain consistency, but you get into the issue of which indicators should be published). The lack of an agreement on how ESG should be assessed, and the fact that different industries should really be focused on different things given their respective materialities (which we have discussed at length before), makes this a tough thing to implement.

Having said that, we foresee that in the next few years an agreement will be reached, and at least data on a few key topics (such as climate change) will be addressed by regulation in the leading geographies.

What is happening in Mexico?

The Mexican Stock Exchanges (BMV and BIVA) have an ESG disclosure project which was originally intended to help the listed companies consolidate all their sustainability disclosures and tend to the different purposes the data is for (rating agencies, investor surveys, etc.). The idea is to create a system (which is still being designed) where companies can upload all their ESG data, and then this data can be fed to the different users.

To date, the idea is that the use of this system would not be mandatory. We think that even without regulation behind it (which would have to come from the CNBV), the system itself would make it very visible to investors which companies are producing the data and which companies aren’t. This would create an important incentive for companies to make sure they are at least in line with their peers’ reporting strategies. We also think this could eventually become a bridge to mandated reporting, in at least some subjects.

As far as we know, companies are being included in the process of this system’s design. So, while it will not be a total surprise for those who are active in this arena that this system eventually (maybe even this year) goes live, we still think some will be caught off guard.

We welcome all initiatives that promote the ESG development of the Mexican market (all markets, really), and we are happy to help any organization that wants to develop a sound ESG strategy before they feel rushed to do it.

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

Partner, Miranda ESG