Why Argentina lags behind in the application of sustainable finance
Since 3 years

According to a survey conducted by the Inter-American Investment Corporation (IDB Group) and Vida Silvestre Foundation in local banks, the link between finance and the environment in Argentina is still “incipient”.

Argentina lags behind in the application of sustainable finance, ie., the incorporation of environmental, social and governance criteria in assessing both the origin of credits and the type of investments to be made, in relation to the rest of Latin America and even more if compared to the rest of the world, according to a survey conducted by the Inter-American Investment Corporation and Vida Silvestre Foundation among the country’s banks.

“In Argentina, the link between finance and the environment is still incipient, but in Latin America this trend is expanding. More and more sustainability indicators are being promoted by stock exchanges, such as San Pablo’s or Santiago de Chile’s”, Pablo Cortínez, Business and Environment Coordinator at Vida Silvestre Foundation Argentina, told Télam.

He added that “in Paraguay there is a sustainable finance roundtable, for example. In Chile, an investigation has recently been published assessing the performance of banks regarding their fight against climate change. That is to say, activity is increasing”.

“Vida Silvestre Foundation carried out a survey along with the IDB with the objective of establishing a baseline on the performance of banks in environmental issues and also aiming at evaluating the necessary steps towards sustainable finance”, said Cortínez.

The results show that the vast majority of banks in Argentina have implemented or are in the process of implementing activities such as recycling and energy efficiency, for example. “The survey covered 24 banks representing two thirds of the Argentinian financial system, a very representative sample. Although this is auspicious, however there are few banks that include environmental criteria when evaluating clients and projects to finance.

“Sustainable finance” is a wide-scope concept that in recent years has become increasingly important at the international level, even in relatively less developed countries. Topics such as green credit lines, responsible investments, green funds, sustainable stock indexes and green bonds are some of the sustainable finance instruments that have become more notorious.

According to the study, only 1 out of 5 banks in Argentina has developed credit lines oriented to sustainability and only 25% of the surveyed banks consider social and environmental aspects in their lending operations.

The survey showed that 83% of banks do not know or are not planning to adopt sustainable finance in the short term. Only 21% have developed credit lines oriented to sustainability.

In the same way, 42% of the entities do not know or have not planned to adopt measures in this sense in the short term; 33% are evaluating or taking it into account and 25% consider it in all operations as well as in their market strategy.

The survey also reveals that 83% of the entities consider that the application of sustainable finances results in concrete benefits regarding the limitation of reputational risk; 71% of them believe that it generates recognition among their clients and civil society organizations; 63% believe that it improves their access to funding; 42% that helps them identify new lines of business; another 33% think that it attracts new customers or businesses and, finally, only 4% consider that sustainable finance really improve environmental quality.

However, surveyed banks consider that regulation on sustainability would increase. This could be related to the regulations that have begun to be applied in the Argentinian financial system as of 2012, which require banks to adopt comprehensive risk systems.

“This started considering 5 types of risks and then over the years other risks were added, such as country risk and residual risk. Therefore, more than half of the surveyed banks believe that environmental risk would eventually be added to local regulations. Although this has not happened yet, we believe this issue will be regulated in the future, considering the relevance that the topic has achieved and what is going on in other countries”, said Cortínez.

“In the region, Argentina is one of the countries that is just beginning to get in touch with green bonds and, in general, with what is called” sustainable finance” for various reasons”, said Cortínez.

He pointed out that while “in Brazil there are 5 banks that adopted the Equator Principles (categorization of projects according to their contribution to the environment) in Argentina only the Galicia bank did, but there is no public bank on this way”. Now Argentina will chair the G-20, which includes a so-called “Green Financial Study Group”. Therefore, I think these issues are going to emerge within the Argentinian financial system”.

“In Argentina we have not yet been able to visualize the importance and potential of these issues, but we are bound to follow the trend that is expanding in the rest of America and also the world”, he concluded.

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