The environmental, social and governance (ESG) movement has rapidly grown, from an increase in ESG reporting to the expansion of sustainability-focused bonds. At Nasdaq, we recognize this Era of Impact, as forward-looking companies leverage ESG to unlock the opportunities of tomorrow.
We spoke with Santiago Rincon Gallardo, head of Indices and Investor Relations at Bolsa Institucional de Valores (BIVA), about evolving and expanding the exchange’s ESG offerings.
Over the past several years, ESG has moved into the mainstream, especially as more companies embrace stakeholder capitalism and investors express greater interest in socially responsible investing. When did the exchange first start considering and incorporating ESG?
Since we launched BIVA in 2018, we have incorporated ESG as a key factor for the stock exchange. We have followed the path established by the Sustainable Stock Exchanges Initiative, based on the mission to be a platform with investors, companies (issuers), regulators, and relevant international organizations, to enhance performance on ESG issues locally and throughout the region.
Who leads ESG at your exchange?
We have an ESG steering committee comprised of internal and independent members on an executive level. Our ESG efforts are led by CEO Maria Ariza, Diana Islas from Operations and Santiago Rincon Gallardo, head of Investor Relations and Indices.
Was there a particular event or moment that prompted a deeper integration of ESG?
There have been a couple of milestones that accelerated our ESG integration offering.
- Being accepted as a member of the SSE Initiative in August 2020 reaffirmed our commitment to having a fundamental role in the construction of a sustainable financial market in Mexico. We see ourselves as the meeting place between the actors that integrate them and protagonists in the definition of standards, development and promotion of good practices that consolidate the capital market and society as “everything.”
- The launch of our FTSE4Good BIVA Index, our first ESG market index, formally launched in January 2020, with which we gave the Mexican market and its listed companies a state-of-the-art benchmark for ESG leaders.
Since launching the FTSE4Good BIVA Index in January 2020, what has been the investor reaction? How has it performed?
The FTSE4Good BIVA Index was the first ESG index in Mexico that incorporated global standards. Since its launch in January 2020, it has outperformed its non-ESG peer, the FTSE BIVA index, by over 300 basis points. Both investors and listed companies are increasingly paying attention to its methodology and tracking its performance. As of today, it’s comprised of 19 companies out of 42 that are eligible.
Having done it in partnership with FTSE Russell, and because the FTSE4Good methodology is widely known, it has helped get international investor interest in the Mexican market and ESG practices.
How does ESG fit into your overall corporate strategy?
We have our own program for ESG called “BIVA Sustentable,” which targets a maximum ESG impact through five big actions: International Standards and Cooperation, Sustainable benchmarks, Sustainable Financial Markets, Education and our Internal Strategy. We recognize that as a market operator, it is critical that we lead by example with good corporate governance and effective risk management. We are committed to being a responsible corporate citizen and having engaged and energized people. In addition, as a provider of critical financial infrastructure, we have a responsibility to support the integrity of our markets and encourage innovation for the benefit of all our stakeholders.
Do you have plans to expand your ESG offerings?
Yes, we are working on five different pillars to expand our ESG offering for all market participants:
- Education: for investors, issuers and other market participants through seminars, conferences and other forums.
- Benchmarks: developing new ESG indices and other tools for the Mexican market.
- Cooperation and alliances: working with local and international initiatives toward a standardized ESG universe (alliances or partnerships with the UN’s Sustainable Stock Exchanges Initiative (SSE), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), Green Finance Council,Principles for Responsible Investment (PRI), International Association for Sustainable Economy (IASE), among others).
- Sustainable markets: helping market participants when they want to issue ESG compliant products (debt, equity, structured, etc.) and helping them meet their ESG reporting requirements by giving them a platform where issuers can easily publish their ESG efforts and investors can access them in a transparent and efficient way and guiding them throughout the process.
- Internal efforts: we aim to lead by example, putting in place best ESG practices in-house.
ESG integration is not a one-and-done implementation. It is a living, breathing process that evolves, adapting to bold demands and better data to be more efficient and effective, so we are constantly working to improve our offerings.
What ESG areas or goals are you particularly focused on for the short and long term?
This year, we have not only witnessed a global pandemic but also widespread and growing concerns about social justice issues. While there has been considerable focus on the ‘E’ (environment) of ESG, the prominence of the ‘S’ (social) and ‘G’ (governance) is rising. Yet despite growing investor focus on the social element of ESG, it remains the component that is most likely to be neglected by issuers in their disclosures. Across all sectors, it is the social element where ESG scores are lowest, and we want to focus on this.
How do you measure your ESG progress?
As our business expands and diversifies, we continue to review our sustainability objectives. Even though we are a private company, we are planning to build our own ESG report in the years to come to see how we have advanced and what we have achieved in terms of our ESG strategy.
How are you communicating your ESG story to your various stakeholders?
We believe that actions speak louder than words, so a lot of our communication comes from our customers who see the day-to-day benefits of our ESG program. This has helped us become the leader in ESG and thematic debt issuances over the last few months. In this regard, we have listed the first of its kind gender bond in Latin America and the first Climate Bonds Initiative compliant green bond in the region for a housing company. We are also in constant communication with investors, companies, associations and market participants through forums, newsletters and targeted events.
What opportunities do you see to enhance ESG data reporting and transparency?
In Mexico, there are no legal requirements to comply with any ESG standard yet, so we see a big opportunity in helping our issuers report what investors need and setting the stage for them to do so, in line with international standards.
We also see significant demand for developing products and service solutions that strengthen the taxonomy and provide the infrastructure that allows listing and trading instruments that facilitate investments that contribute to the protection, conservation and restoration of the environment.
To survive and thrive in the era of impact, companies must navigate and adapt to regulatory changes and evolving ESG norms. This means leveraging the right solutions to help drive positive business outcomes.
According to the SSE Initiative, BIVA is developing an ESG reporting guide for small- and medium-sized enterprise (SME) issuers. When will it launch? What are the key ESG considerations for SME issuers?
We are developing an ESG Reporting Guide for issuers and potential issuers to establish an ESG strategy. It will help SMEs navigate through all the information that’s out there, but it can also be useful for large-cap companies.
It is planned to be launched by the third quarter of 2021. This guide includes recommendations for preparing sustainability reports and publishing relevant and reliable information for investors, promoting best practices, greater monitoring, and risk prevention.
The challenge for issuers is not only to focus and improve on their ESG performance but also on how they communicate and engage with investors. Key considerations are based on the TCFD, SASB and GRI initiatives.
How will your ESG goals/initiatives benefit not only the company but also impact the local capital markets?
For many investors, the pandemic has highlighted the link between ESG issues and economic and corporate performance.
Given the growing importance of ESG data to investors, we hope our efforts will prove useful for issuers as they plan their disclosure on key quantitative metrics, delivering greater levels of confidence to investors and broader stakeholders as the world focuses its lens on ESG.
This higher level of ESG disclosure and transparency will benefit the market, giving investors more certainty in their decisions and help issuers improve their practices, making them more resilient in the days to come.
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