This chapter describes the public equity and corporate green, social and sustainability (GSS) bonds landscape in Latin America. It presents the ownership structure of listed companies and the degree of ownership concentration at the company level. It also provides an overview of the trends in corporate GSS bond issuance and in investment funds focusing on sustainability.
Sustainability Policies and Practices for Corporate Governance in Latin America
Corporate Governance
2. Capital market and investor landscape
Abstract
Due to their long‑term nature, equity markets may contribute to innovation and long‑lived investments, which are prerequisites for sustainable economic growth. Access to equity financing may support corporations to direct investment towards productive and innovative activities while allowing them to meet their obligations to employees, creditors, and suppliers. From the perspective of ordinary households, public equity markets provide an opportunity to, directly or indirectly, participate in corporate value creation, as well as to have access to additional options for managing savings and planning for retirement.
2.1. Latin America public equity market
In 2021, 1 088 companies were listed in the Latin American public equity markets with a total market capitalisation of USD 1 602 billion (Table 2.1). Brazil’s equity market represents half of the total market capitalisation of the region, followed by Mexico (28.3%) and Chile (9.3%). The remaining 12.4% corresponds to Colombia (5.5%), Peru (4.5%), Argentina (2.3%) and Costa Rica (0.1%). On average, companies representing 72% of market capitalisation are included in the main large capitalisation index in each country. Extractives and minerals processing is the largest industry in Colombia, Argentina, Peru and Brazil among listed companies, accounting on average for 35% of the total market capitalisation.
Table 2.1. Summary statistics of public equity markets in Latin America
Note: Excluding investment funds and REITs.
Source: OECD Capital Market Series dataset, Refinitiv, Handbook Ibero American Federation of Stock Exchanges (FIAB).
Between 2000 and 2021, almost 700 new listings and 1 049 delistings took place in the Latin American public equity markets (Figure 2.1, Panel A). Net listings were only positive in 2007, 2011, 2020 and 2021, mainly driven by listings in the Brazilian equity market. In 2021, while there were 59 new listings in Brazil, only two listings occurred both in Chile and Mexico and one in Peru. Total market capitalisation to GDP in Latin America ranges from 3% in Costa Rica to 50% in Brazil, which is below the OECD average at 150% (Figure 2.1, Panel B).
Figure 2.1. Summary statistics of the public equity market in Latin America
Note: Excluding investment funds and REITs.
Source: OECD Capital Market Series dataset, Refinitiv, Latin American stock exchanges and securities regulators.
2.2. Investors and ownership structure in Latin American public equity markets
Globally, the ownership structure of the listed companies has experienced significant changes over the past two decades, notably due to the increase in institutional ownership (OECD, 2021[5])). Nevertheless, there are significant country and regional differences for each category of investors that constitute the largest shareholders at the company level. Figure 2.2 shows the ownership distribution among different categories of owners in Latin America and in selected countries, using the categories in the report Owners of the World’s Listed Companies (De La Cruz, Medina and Tang, 2019[6]).
In the United States and the United Kingdom, institutional investors are the largest category of owners holding 69% and 61% of the equity, respectively. In Japan, France and Spain, institutional investors rank also first among different categories of investors, with a comparatively lower share of market capitalisation. In India and in most Latin American countries, private corporations are the most prominent investors. Distinctively, strategic individuals rank first in Mexico holding 34% of the listed equity, while in Colombia the public sector holds almost 40% of the listed equity (Figure 2.2).
Figure 2.2. Investor holdings at country level, end‑2021
Note: “Other free‑float” refers to the holdings by shareholders that do not reach the threshold for mandatory disclosure of their ownership records or retail investors that are not required to do so.
Source: OECD Capital Market Series dataset, FactSet, Refinitiv, Bloomberg. See Annex B for details.
While in Latin America, institutional investors are less important owners than in the United Kingdom or the United States, they hold 27% of the listed equity in Brazil, 19% in Mexico, 15% in Colombia and 13% in Chile. Non‑domestic institutional investors hold a larger equity share than domestic ones in four out of the six major Latin American markets, the exception being Colombia and Peru. Similarly, domestic institutional investors hold larger shares in listed companies only in China and in the United States among the seven non‑Latin American jurisdictions analysed in this report (Figure 2.3).
Figure 2.3. Domestic and non‑domestic institutional ownership in Latin America and selected countries, end‑2021
Source: OECD Capital Market Series dataset, FactSet, Refinitiv, Bloomberg. See Annex B for details.
The degree of concentration and control by shareholders at the company level is relevant when regulating related party transactions, takeovers and other matters regarding the informational asymmetry between controlling and non‑controlling shareholders (OECD, 2021[5]). Table 2.2 shows the average combined holdings of the largest shareholders in the listed corporate sector. In Latin America, the degree of ownership concentration is higher than in other markets. The average combined holdings of the top three investors ranks from an average of 57% in Mexico and Brazil to a 73% average in Argentina, Chile, Colombia, and Peru. In the other selected markets, the top three investors only account for an average of 45% ownership. This high concentration is partially the result of significant ownership by private corporations in company group structures.
Table 2.2. Ownership concentration at the company level in Latin America and selected countries, end‑2021
Source: OECD Capital Market Series dataset, FactSet, Refinitiv, Bloomberg. See Annex B for details.
2.3. Green, Social and Sustainability (GSS) corporate bonds
Corporate bonds allow companies to diversify their financing sources due to their long‑term maturity structure. Unlike ordinary bank loans that are typically used as a source of short‑term working capital, bonds can be issued for a defined purpose. In 2020 and 2021, global bond issuances by non‑financial companies reached record amounts of USD 3 trillion and USD 2.5 trillion, respectively (de Oliveira, Magnusson and Mulazimoglu, 2022[7]).
In recent years, companies have started to issue corporate bonds with defined sustainability objectives such as clean transportation, energy efficiency, and climate change adaptation. In 2013, the green, social and sustainability (GSS) corporate bond issuance was USD 3.2 billion globally, while in 2021 and 2022 (up to October) the total amounts were USD 658 billion and USD 410 billion, respectively (half of this total was issued by non‑financial companies). Nevertheless, the amount issued in GSS corporate bonds still represents only a small fraction of total corporate bonds issuance.
GSS bonds are classified into four main categories according to the company’s use of raised funds. First, “green bonds” are dedicated to environmental projects or activities, including those related to climate change mitigation and adaptation (ICMA, 2021[8]). Green bonds account for the largest share of GSS bonds, adding up to USD 217 billion in 2021 raised by non‑financial companies and USD 181 billion by financial institutions (Figure 2.4). Second, “sustainability bonds” are dedicated to environmentally or socially sustainable outcomes (ICMA, 2021[9]). In 2021, 12% of the GSS bonds issued by non‑financial companies were labelled sustainability bonds, and this share decreased to 8% in 2022. Third, the proceeds of “sustainability‑linked bonds” do not need to be invested in projects with an expected positive environmental or social impact, yet the debtor’s financing costs may increase if it does not meet specific sustainability objectives (ICMA, 2020[10]). In 2021, non‑financial companies issued USD 84 billion in sustainability‑linked bonds, which represents 24% of all GSS bonds issued by non-financial companies. Finally, “social bonds” are dedicated to projects that promote improved social welfare for underprivileged, low‑income, marginalised, excluded, or disadvantaged populations (ICMA, 2021[11]). Non‑financial companies have issued negligible amounts of social bonds, while 10% of the funds raised by financial companies via GSS bonds were in social bonds.
Figure 2.4. Global GSS corporate bond issuances
Note: Information for 2022 includes deals as of October 2022.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
GSS bonds in Latin America have been mostly issued by non‑financial companies. In 2021, out of the USD 25.6 billion of proceeds in GSS bonds, only USD 2 billion were raised by financial companies (Figure 2.5). Sustainability‑linked bonds accounted for the largest category of GSS bonds, with raised proceeds of USD 16 billion in 2021. Despite the surge in the issuance of GSS bonds in 2021, the activity has decreased to pre‑COVID levels in 2022, with only USD 1.9 billion raised via GSS bonds by non‑financial companies and USD 0.3 billion by financial ones as of October.
Figure 2.5. GSS corporate bond issuances in Latin America
Note: Information for 2022 includes deals as of October 2022.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
Companies in China and the United States have been the largest issuers of GSS bonds throughout the 2013‑21 period, raising USD 255 billion and USD 268 billion, respectively (Figure 2.6). The Netherlands, Germany, France, Korea, Japan, and the United Kingdom rank also among the most important issuers of GSS bonds. In Latin America, Chile (USD 14.8 billion) and Mexico (USD 13 billion) have the most active markets for GSS bonds, although in Chile green bonds are dominant against a prevalence of sustainability‑linked bonds in Mexico among non‑financial companies.
Figure 2.6. GSS corporate bonds issuances in Latin America and selected markets between 2013‑22
Note: Information for 2022 includes deals as of October 2022.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
Globally, half of the GSS bonds were issued by financial companies between 2013 and 2022. The financial sector was followed by utilities and industrials with shares of 18% and 8%, respectively, during the same period. In the United States, financials have been important issuers, but to a lesser extent with 35% of the issued GSS bonds, followed by utilities (26%) and technology (11%). The industry distribution in Latin America differs as financials only account for 11% of the raised funds via GSS bonds, while basic materials and utilities represent almost 30% of the raised funds.
Figure 2.7. Industry composition of GSS corporate bonds between 2013‑22
Note: Information for 2022 includes deals as of October 2022.
Source: OECD Corporate Sustainability dataset, Refinitiv, Bloomberg. See Annex B for details.
2.4. ESG and Climate Investment Funds
Since 2016, investment funds that label themselves as ESG or sustainable funds – by including “ESG”, “sustainable investing” or similar terms in their names – have received increasing net inflows. In 2016, assets under management totalled USD 568 billion against USD 1 530 billion in 2021 (Figure 2.8, Panel A). With respect to climate funds, their net inflows were almost 8 times larger in 2021 with USD 154 billion when compared to 2016. In Latin America, assets under the management of ESG funds saw a significant increase in 2021, where the total AUM reached USD 4 billion, while climate funds averaged at USD 52 million over the 2016‑21 period (Figure 2.8, Panel B).
Figure 2.8. Assets under management of funds labelled as or focusing on ESG
Note: Funds retrieved from Reuters Funds Screen classified as Climate Funds or ESG Funds in the case their names contain, respectively, climate or ESG relevant acronyms and words such as ESG, sustainable, responsible, ethical, green and climate (and their translation in other languages). Funds without any asset value are excluded.
Source: Refinitiv, Datastream, OECD calculations.