Chile readying mandatory ESG reporting rules

The consensus is that a business benefits by measuring and disclosing its performance in the environmental, social and governance (ESG) stakes. 

While getting the wheels in motion requires resources, corporate self-reflection can help a company better understand both its risks and opportunities, according to the common narrative. 

Provision of ESG data can also ease access to funding from an international financial community increasingly concerned about the actions of the companies they inject their money into and their associated climate risk. 

As ESG gains traction and shifts from concept to corporate practice, the focus globally is on data quality and standardization, a challenge the World Economic Forum and stakeholder partners are helping to tackle. 

DRAFT ESG REPORTING RULES

Against this backdrop, Chile’s securities regulator CMF is preparing to unveil within the next 10 weeks draft rules which establish that issuers of publicly traded securities must provide ESG information in their annual reports. 

Officials plan on adopting SASB disclosure standards, which are maintained under the auspices of global nonprofit the Value Reporting Foundation. 

Once CMF formally adopts the rules, the watchdog would implement them gradually, starting with large companies, CMF commissioner Mauricio Larraín said during a seminar hosted by Chile’s association of external auditors. 

The association has produced a white paper on recommendations to improve the quality and availability of ESG information in Chile, which center on data quality, transparency and sharing mechanisms. 

“Without doubt it is very important that disclosure of ESG information is comparable,” said Larraín. “Therefore, using an international standard that can be harmonized is very relevant.”

In drafting its ESG reporting framework, CMF consulted both issuers and investors.

“We firmly believe [based on these talks] that SASB … is a highly useful standard for investors, being increasingly used in the world. Therefore, we believe it’s suitable for the purposes of disclosure under the proposed new rules that we’re close to publishing.”

Larraín said adoption would require investment on the part of regulated companies as well as the training of CMF staff tasked with monitoring compliance. 

Regulated companies will have to identify with one of over 70 business categories listed by SASB and provide the specific ESG data that their category requires.

Axel Christensen, investment strategy director for Latin America at asset manager BlackRock, said companies should use ESG disclosure to outline future business opportunities – not just risks.

Susana Sierra, chair of Chile Transparente, the Chilean chapter of NGO Transparency International, said ESG reporting rules and requirements should be simple to comply with and that monitoring was needed.

Companies of all sizes – especially those looking to expand – should embark on the ESG reporting avenue and not see it as a bureaucratic burden, she said.

Those firms that attempt greenwashing, providing false or misleading information about their environmental credentials, will run the risk of reputational damage if exposed, the seminar was told.

Fernando Alvear, CEO of Chile's confederation of production and commerce (CPC), the country’s main business grouping, said unregulated companies such as SMEs should not be left behind as the ESG reporting train departs.

“If we don’t address this, we’ll create a gap, one that will only grow with time,” Alvear said.

Chile Transparente, along with the Santiago stock exchange and regional business socioeconomic impact certification organization Sistema B, collaborated on the external auditor association’s white paper.