Climate Change Concerns Impact the Financial Sector

A significant number of us have retirement funds or life insurance, to which we may contribute a portion of our monthly salary income. However, we seldom ever know where our money is being invested. We just have faith that the financial system has prudently invested our savings and that we will have access to the necessary resources when the time comes. However, neither the exact location of our investments nor the legal framework that financial institutions are subject to are known to us.

The agreement that emerged from COP28, which took place in the United Arab Emirates in November and December of 2023, urged governments, banks, investors, and other financial players to use “climate disclosures” as an essential first step in gaining access to climate finance for all regions and industries. Additionally, this was proposed so that depositors could understand exactly what was happening with their investments and savings.

The resolution represented a global recognition of the pressing necessity of coordinating sustainability initiatives with private organizations to hasten the ongoing development of fresh and creative funding sources for climate action.

For these and other reasons, the findings of the Latin American Climate Assets Disclosure Initiative (LACADI), which was carried out with the assistance of specialists from the Global Sustainability Standards Board (GSSB), examined the developments of 48 institutional investors that are active in Peru, Mexico, and Colombia. These investors include nine pension funds, seventeen insurance companies, and twenty-two asset managers. It is crucial to determine the needs for capacity and support while making sure that Latin American investors disclose the risks and opportunities that climate change presents in their portfolios clearly and understandably. The LACADI 2023 Ranking is based on the state of the implementation of international recommendations to achieve climate disclosure.

The ranking’s participants account for 21% of pension and insurance assets in Colombia and 19% in Mexico. Over 90% of reported assets in Peru are made up of participants.

The ranking’s conclusions show that, in Colombia, Mexico, and Peru, 78% of pension fund administrators (AFPs), 35% of insurers, and 68% of other asset managers do not account for the risks associated with climate change in their financial planning. As the effects of climate change become more apparent, our investments’ final destination and the accountability of these financial players ought to be our top priorities. This is due to both the opportunities provided by portfolio decarbonization and the financial risks associated with the effects of the climate crisis.

Numerous companies and investors in Latin America have been getting ready for a changing climate. Nevertheless, this ranking shows that the data provided by the financial industry in the region isn’t costed, traceable, or comprehensive enough. It’s also only available in Spanish, which isn’t fully compatible with the AI-based search engines that are being used. Gaining a better understanding of the efforts being made by these regional players could help to diversify the economy, identify areas that need support, boost investment confidence, and redirect and increase resources allocated to climate change.

Information must flow from the region to the global level while acknowledging the difficulties and determining the required support for financial actors in Latin America. This should be predicated on a plan that recognizes that although the business and financial sectors are adhering to international standards for disclosure, there are still significant gaps in the way investor strategies account for climate risks. Investors from Latin America need to work together in a way that is evident to the rest of the world.

The era of lectures is over, nearly 10 years after the Paris Agreement was ratified.

Investors and entrepreneurs must make proactive green proposals. Moving toward resilient and carbon-neutral economies also requires coherent regulations. To do this, we need to focus on three important areas:

• Clearly define factors that have a tangible impact on society as new, clean, sustainable, and decarbonized investment portfolios.
• The creation of particular mechanisms and pathways that create diversified and environmentally friendly markets, and activate profitable sustainable investments and alternatives.
• Encourage a logical and attainable regulatory framework. Regulation is the strongest trigger there is. But when it comes to climate disclosures, cooperation between the regulated companies and the government is essential.

All of us can bring about meaningful change, whether we are investors, pensioners, policyholders, or just general financial consumers. We have the power to insist that the financial organizations handling our savings make investments in a safe future. We need to make sure that financial institutions take into account the opportunities and risks involved in the shift to renewable energy and climate-sustainable technologies, and that our resources aren’t stifled by out-of-date investments. It’s also time to push Latin America—including its financial industry—to the forefront of the global climate movement.