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Sustainable finance in Latin America: Latin Americans want transparency

Six out of ten Latin Americans prefer a bank that invests in social and environmental actions.

In today’s rapidly evolving global landscape, the call for sustainability has transcended beyond environmental activism, embedding itself firmly within the financial sector.

Sustainable (green) finance, a concept that marries financial investment with environmental, social and governance (ESG) considerations, has emerged as a critical pathway towards addressing the urgent challenges of climate change, social inequality and corporate governance.

Six out of ten Latin Americans prefer a bank that invests in social and environmental actions
Six out of ten Latin Americans prefer a bank that invests in social and environmental actions

This transformative approach to finance doesn’t merely aim to mitigate risks associated with these global challenges but seeks to harness the power of capital markets in driving the transition towards a more sustainable and equitable global economy.

Younger generations like Millennials and Gen Z have further driven ESG investment, and this trend is expected to continue its course. Estimates suggest that by 2025, approximately one-third of all globally managed assets will be subject to ESG criteria. Furthermore, by 2036, the value of investments adhering to ESG standards is expected to soar to $160 trillion.

The importance of sustainable finance has been increasingly recognized across the globe, and Latin America is no exception. This region, known for its rich biodiversity and potential for sustainable growth, presents a unique opportunity for the integration of ESG factors into its economic development strategies.

But, what is the current status of sustainable finance in Latin America? Is sustainability important for consumers in the region? A recent research conducted by Sherlock Communications provides valuable insights in answer to these questions. The Green Finance research offers a clear overview of the sustainable finance landscape in Latin America.

In this article, we'll delve into how Latin American consumers perceive sustainable finance in the region, the importance they place on it and their willingness to act in favor of financial entities that prioritize environmental and social consciousness.

Let’s uncover the underlying dynamics shaping sustainable finance in the Latin American region.

Sustainable finance in Latin America: landscape overview

Navigating the sustainable finance landscape in Latin America presents a journey through a terrain marked by contrasts and challenges, yet brimming with potential.

The region presents a complex landscape marked by economic fluctuations and political instability, which demands adaptability for those investing in sustainability. Fragmented regulatory frameworks and challenges in funding for small and medium-sized enterprises (SMEs) add another layer of complexity.

Moreover, there is a crucial need for increased awareness and expertise in sustainable finance across the region. This need is exacerbated by the lack of reliable and standardized data on sustainability performance, which is crucial for accurate impact measurement and reporting.

However, despite these obstacles, Latin America's rich natural resources offer significant potential for sustainable investments in areas such as eco-tourism, renewable energy and sustainable agriculture. The progress in harnessing this potential varies widely among the different countries, reflecting differences in economic conditions, regulatory environments and exposure to environmental and social challenges.

This diversity underscores the complexity of navigating sustainable finance in Latin America, yet it also highlights the rich opportunities that lie within the region for those willing to adapt and innovate.

Latin American consumers’ sentiment about sustainable finance

The relationship between Latin American consumers and sustainable finance is increasingly defined by a demand for transparency and ethical investments.

The Green Finance report reveals that a significant majority of consumers in the region prioritize sustainability in their financial decisions, preferring institutions that invest in environmental and social causes.

According to this study - conducted across Argentina, Brazil, Chile, Colombia, Mexico and Peru - consumers really care about how their bank behaves and invests their money. Six out of ten (58%) Latin Americans across the region said they would give preference to a bank that invests in social and environmental actions.

Latin American consumers demand transparency. An overwhelming majority (81%) indicated that banks should inform consumers about how they are using their client’s money. However, Latin Americans are not satisfied with how this information is being shared by these institutions: only 9% felt banks were already sharing this information.

But the study further reports that Latin American consumers are demanding more than just surface-level commitments to sustainability from their banks; they seek tangible proof of these claims. The expectation is for financial institutions to offer clear insights into their investment activities, particularly in how they align with sustainable and green finance initiatives.

This includes providing transparent, reliable and auditable reports on sustainable practices, as well as detailed policies on investments in green energy. Such transparency is not just preferred but expected, as consumers look to ensure that their financial partners truly embody the principles of sustainability they claim to support.

This demand for authenticity and accountability underscores a broader call for integrity within the financial sector, reflecting a significant shift towards informed and ethical consumerism in the region.

The impact of sustainability on Latin American consumers’ sentiment and behavior

Sustainable finance in Latin America has a strong impact on consumers’ behavior. In fact, one in ten Latin Americans would go as far as closing their accounts if they were aware that their bank investments go against their principles. Some of the main areas of concern include: companies connected to organized crime, companies that cause environmental disasters, child labor, logging, weapons industry and conflict minerals.

This growing awareness among Latin American consumers reflects a broader movement towards integrating ESG criteria into financial decision-making. These insights further showcase an increasing readiness among Latin American consumers to switch financial providers for ones that align more closely with their sustainability values.

In fact, the impact of this sentiment towards sustainability is so powerful that a vast majority (83%) of Latin American consumers affirm that “companies need to be punished if they do not treat the environment well”. Moreover, 83% of Latin American consumers agree that companies that do not treat people with respect and dignity should not have access to credit.

Three out of four Latin Americans (74%) say that “blocking credit is a great way to demand better behavior from companies”. This trend underscores a shift where financial activities' impact on society and the environment are crucial considerations.

This collective push for a more transparent, ethical approach to finance signals a pivotal moment for the financial sector in Latin America. As consumer preferences evolve, financial institutions are called upon to adopt investment strategies that are not only financially sound but also ethically responsible, highlighting the critical role of consumer sentiment in driving the region towards a more sustainable financial future.

Embracing the future: the imperative of sustainable finance in Latin America

The sustainable finance landscape in Latin America - as vividly outlined by the Green Finance report findings - highlights a consumer base that is more than just aware: Latin American consumers are actively demanding transparency, ethical investments and real commitments to sustainability from their financial institutions.

Latin Americans are not only clear about their desire for sustainable finance, but are also prepared to act decisively, favoring banks that align with their environmental and social values, and even severing ties with those that don’t.

In a region as diverse and resource-rich as Latin America, the potential for sustainable finance to drive positive environmental and social outcomes is immense. Businesses and financial institutions in the region are at a pivotal juncture, where leading sustainable finance initiatives is not just an ethical choice but a strategic necessity.

By aligning investment strategies with consumers’ sustainability values, businesses can foster deeper trust and loyalty, ensuring their long-term success and resilience and leading the charge towards a greener, more equitable financial future.

By leveraging the rich insights from the Green Finance report, businesses can better understand the landscape of sustainable finance in Latin America and seize the numerous benefits that sustainable finance offers. This study offers a roadmap for integrating environmental and social governance (ESG) considerations into businesses’ operations and investment strategies.

With these insights now revealed, the onus is on businesses and financial institutions to understand and integrate this data into their operations, harnessing the transformative power of sustainable finance to drive positive change and prosperity across Latin America.

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