This chapter presents evidence from the OECD survey of asset managers investing in Latin America on their engagement methods with companies about sustainability matters, as well as managers’ willingness to file a sustainability-related shareholder resolution. It also presents the number of Latin American listed companies with GHG emissions reduction targets.
Sustainability Policies and Practices for Corporate Governance in Latin America
Corporate Governance
6. Shareholders
Abstract
6.1. Shareholders’ engagement
Concerning a corporation’s objective and its responsiveness to sustainability trends, shareholders and other stakeholders commonly have three ways where they may influence or compel managers to incorporate sustainability risks into their business decision-making processes: i) in direct dialogue with directors and key executives, ii) in a shareholders’ meeting, and iii) in courts (OECD, 2022, pp. 25-28[1]).
Direct dialogue between shareholders and management can take many forms. The initial engagement would typically occur in private meetings and correspondence, but it could escalate to public letters, proxy contests, complaints to a securities regulator and lawsuits. An individual shareholder may engage independently with a company’s management, or a shareholder may choose to coordinate efforts with others. Despite differences in engagement methods, sustainability risks and opportunities are currently a great concern to asset managers investing in Latin America (Figure 6.1), impacting their decisions not only when investing but also when engaging with companies and voting in shareholder meetings.
Shareholders’ proposals often focus on specific issues and demand relatively short‑term action from management, such as developing a report, requiring a change in corporate policy or strategy, or changing the board's composition. However, shareholders may also propose amendments to a company’s articles of association with broader and longer‑term consequences. As presented in Table 4.2, there were 330 sustainability‑related shareholder resolutions (38 involving climate change) among 103 Latin American listed companies from 2019 to 2021. Likewise, a large majority of asset managers investing in Latin America mentioned they would consider filing or co‑filing an ESG‑related shareholder resolution in the country (Figure 6.2).
Figure 6.1. Importance of sustainability risks and opportunities to asset managers
Note: In the survey questionnaire, asset managers could answer "yes" or "no" or leave it unanswered. The shares in this figure consider only the universe of asset managers that answered either "yes" or "no", which is slightly different for each one of the forms of interaction. For instance, 89 large‑sized asset managers provided an answer related to “Voting in a shareholders meeting”, while only 98 of them answered with respect to the topic “Making investment decisions”. Overall, on average, 90% of the asset managers responded within each size category and interaction.
Source: OECD Survey on Sustainability Practices of Asset Managers in Latin America.
Figure 6.2. Asset managers’ willingness to file a sustainability ‑related shareholder resolution in Latin America
Note: In the survey questionnaire, asset managers could answer "yes" or "no" or leave it unanswered. The shares in this figure consider only the universe of asset managers that answered either "yes" or "no". On average, 73% of the asset managers responded within each size category.
Source: OECD Survey on Sustainability Practices of Asset Managers in Latin America.
6.2. Climate change risks and GHG emissions reduction
Corporate awareness and regulatory actions around climate change disclosure have accelerated in recent years. As stated in Chapter 4, the percentage of companies by market capitalisation that acknowledge the risk of climate change is high, impacting investors' decisions and shareholders' resolutions. Climate change risks are even more relevant in Latin America, being financially material for 71% of companies by market capitalisation.
In some cases, shareholders have voted for the adoption of greenhouse gases (GHG) emissions reduction targets. In some others, companies’ management has pro-actively established reduction targets. Either way, a reporting system is an important first step in any effort to reduce GHG emissions. It requires an accurate measuring, reporting, and tracking system of the emissions resulting directly from the activities carried out by the company (scope 1), indirect emissions related to energy consumption (scope 2), and emissions generated in the supply chain (scope 3).
Figure 6.3. Disclosure of scope 1 & 2 GHG emissions by listed companies in 2021
Note: The “total” in “percentage of ‘Yes’ over the total” includes all listed companies within each category, including those for which there is no available information. For instance, in the case of the global category, the percentage is calculated over 42 019 worldwide listed companies, while in Latin America the percentage is calculated over 1 252 companies. Only the companies that reported both scope 1 and scope 2 emissions are counted in the analysis.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
Globally, 5 240 companies representing 72% of market capitalisation disclosed scope 1 and scope 2 GHG emissions in 2021. In the United Kingdom and the European Union, on average, 91% of the companies disclosed scope 1 and 2 emissions. In Latin America, 76% of companies publicly disclosed scope 1 and 2 emissions, ranging from 44% in Argentina to 87% in Colombia (Figure 6.3). Remarkably, when analysing the disclosure of scope 3 emissions, a 16 percentage points difference exists when compared to the disclosure of scope 1 and scope 2 emissions. In 2021, 3 300 companies (56% of the market capitalisation) reported scope 3 emissions. In Latin America, the gap is less visible with a difference of 8 percentage points between the two categories.
In a sample of the 143 largest companies in each market described in Chapter 3, there were no assurance engagements that covered the entirety of a sustainability report. In the United Kingdom, Brazil and Chile, however, it was possible to verify that at least half of the companies provided an assurance of their reported GHG emissions. In the United States, less than 10% of the companies in the sample declared that their GHG emissions were assured in their sustainability reports. (Table 6.1).
Figure 6.4. Disclosure of scope 3 GHG emissions by listed companies in 2021
Note: The “total” in “percentage of ‘Yes’ over the total” includes all listed companies within each category, including those for which there is no available information. For instance, in the case of the global category, the percentage is calculated over 42 019 worldwide listed companies, while in Latin America the percentage is calculated over 1 252 companies.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
Table 6.1. Assurance engagement covering GHG emissions among the largest companies
Note: GHG emissions were considered assured if there was a mention of the GHG emissions keywords in the assurance letters, or when GHG emissions keywords indicated assurance nearby in the full sustainability reports.
Source: NPL analysis developed by Miklos Vasarhelyi, Ricardo Lopes Cardoso and their teams affiliated to, respectively, Rutgers University (United States) and Getulio Vargas Foundation (Brazil).
Globally, almost two‑thirds of the companies by market capitalisation disclose a GHG emission reduction target. In the United Kingdom and the European Union, the share of companies is larger, representing 84% and 81%, respectively. In Latin America, 134 companies that account for 58% of the region’s market capitalisation have publicly disclosed GHG emissions targets. Argentina (25%), Peru (30%) and Chile (46%) stand below the region’s average, while Brazil (59%), Mexico (69%) and Colombia (81%) rank higher (Figure 6.5).
Figure 6.5. Disclosure of GHG emissions reduction targets by listed companies in 2021
Note: The “total” in “percentage of ‘Yes’ over the total” includes all listed companies within each category, including those for which there is no available information. For instance, in the case of the global category, the percentage is calculated over 42 019 worldwide listed companies, while in Latin America the percentage is calculated over 1 252 companies.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.