RI Interview: Marcos Ayerra of Argentina’s Securities and Exchange Commission: Mainstreaming sustainable finance

Ayerra co-chairs a working group on sustainable finance in emerging markets

“I perceive a sense of urgency on mainstreaming sustainable finance,” says Marcos Ayerra, chairman of the Securities and Exchange Commission of Argentina (CNV).

For the past three years, Ayerra has been co-chairing a working group exploring sustainable finance in emerging markets and the role of securities regulators as part of the International Organization of Securities Commissions (IOSCO).

The Working Group on Sustainability in Emerging Markets, which involved securities regulators from Malaysia, China, Dubai, Brazil and India among others, released its final report earlier this year.

“You cannot mainstream sustainable finance if the domestic markets are not developed.”

The recommendations included issuers integrating ESG issues, ESG disclosure and defining sustainable investments. 

Speaking about the work, Ayerra, who is also a board member of IOSCO and chair of the Inter-American Regional Committee, says: “I see two different worlds in this respect. You have the developed markets and a few of the largest emerging markets, where the domestic sustainable finance market has been advancing because of the presence of local investors committed to the matter.

“The pension funds, insurance companies, mutual funds. They are committed with their principles and these investors have been driving the market growth.”

He continues that the other world includes more than 100 smaller jurisdictions, which lack the presence of domestic investors committed to responsible investing.

“In Argentina for example we don’t have a domestic market. We have seen a few bond issues from provincial governments and banks, in all cases bought by foreign investors or multilaterals. There is no domestic demand for labelled instruments.

“There are some domestic issuers. Several project-level companies focus on renewable energy and raise money. But again 100% of the funding came from foreign investors. So, the main goal is to develop the domestic market demand. You cannot mainstream sustainable finance if the domestic markets are not developed.”

Market development in Argentina 

Ayerra says one of the main conclusions in the GEM (Growth and Emerging Market Committee) IOSCO report is that regulators have a role to play in emerging markets in creating awareness of sustainable finance:

“There are two main differences with the advanced jurisdictions. One, as I said before, is a lack of domestic investors. Secondly, most emerging market regulators have a legal mandate to develop the market, in addition to the typical advanced jurisdictions mandate of protecting investors, mitigating systemic risk, and ensuring that markets are fair, efficient and transparent.”

As part of its mandate, the CNV itself has been trying to raise awareness of sustainable finance in Argentina for the past three years, says Ayerra.

It has issued guidelines to create a domestic standard for sustainable securities, with the advice of the UN and Climate Bonds Initiative. And it also changed the corporate governance code to include ESG questions related to the incorporation of ESG into the strategy and board decisions of issuers.

A new law was approved by the Argentinian Congress in 2018 which creates an income tax incentive for investing in closed-end funds and financial trusts, a move which Ayerra says will be helpful to develop housing projects, venture capital, and also the securitisation of private loans – investments that could fuel the growth of impact investment in Argentina.

In addition, the stock exchange Bolsas y Mercados Argentinos (BYMA) created a segment for sustainable/ESG securities that meet the guidelines issued by the CNV. BYMA has also created a corporate governance panel and a sustainability index with the Inter-American Development Bank.

There have been more than 100 issues of “digital mini bonds”, a new product for SMEs created by the CNV in 2017, which although not yet labelled, have been considered by verifiers as social bonds as they align with the UN Sustainable Development Goals, says Ayerra.

And FixScr, the Argentine representative of Fitch, has created a rating for ESG, registered at the CNV.

“The banks have also got together through the Argentine banking associations and signed a protocol for the incorporation of sustainable finance into their lending decisions,” says Ayerra.

Financial sector meetings 

Ayerra is not certain to continue in his role when a centre-left government led by Alberto Fernández takes office on 10 December. But people close to the matter say his work on sustainability is likely to be carried on by his team and enlightened industry forces, whatever happens.

The CNV also now convenes monthly meetings with Argentina’s financial sector on sustainable finance.

“We should allow for market growth, so a virtuous circle of activity and awareness is created.”

“This includes insurance companies, pension funds, mutual funds, brokers, banks, central banks, issuers (companies) and rating agencies. More than 100 people from these organisations are meeting monthly,” says Ayerra.

He says the meetings have provided vital insight into how to catalyse sustainable finance. “We have many insurance companies and fund managers where the owner is a foreign entity strongly committed to responsible investing. As an example, there is one organisation that is one of the most committed insurance companies in the world towards sustainable finance. And I asked them “why are you doing nothing in this area in Argentina?”. They said: ‘there are no assets. There is nothing happening here.’”

“On the other hand. We had a couple of companies that had placed capital market bonds for financing renewable energy projects. And I asked them “why aren’t you labelling the instruments as sustainable”. And the issuer said no one was asking for it.

“So now we all are together in these meetings talking about it. So the magic word is creating awareness.”

Ayerra also says transparency is key. “Capital markets have that magic in that an investor can choose where they want to invest. It’s not like a deposit in a bank. You choose the destiny of your money. Millennials and younger retail investors are looking to invest more consciously. So the market has the opportunity to create opportunities for them.

“But in terms of mitigating systemic risk, we are in a chicken and egg situation. Some say the market is not ready yet, because of all the discussions around the lack of consensus on taxonomies, disclosure and lack of comparability. But I think all the market actors should do a great effort to create awareness, and in any case regulators should make sure that issuers are transparent and say the truth. We should allow for market growth, so a virtuous circle of activity and awareness is created.”

Ayerra admits this work comes at a challenging time for the country amid a continuing economic crisis continues. Its sovereign rating is currently ‘very high credit risk’ according to Moody’s after a series of IMF loan defaults.

“We have now more awareness. We have the infrastructure, guidelines, the new codes, ratings. So everything is set up. We are just waiting for the first tagged instrument to be placed domestically. Despite the crisis and the market slowdown in Argentina, there are some ESG dedicated financial trusts and close ended funds already submitted for approval to the CNV, and also issuers looking for sustainability approval of their products at the stock exchange. This is in process,” says Ayerra.

Impact summit 

RI speaks to Ayerra during the GSG Impact Summit 2019. The event was relocated from Chile to Argentina last minute due to public unrest.

Maria Eugenia VidalAyerra attended the Summit, which featured a keynote speech from key Argentine officials such as the first female governor of Buenos Aires, Maria Eugenie Vidal.

He says: “It was a very high-level conference. It was very educative to me, and I perceived a sense of urgency for mainstreaming impact investing, that the time for accelerated growth has come. My congratulations to the organisers and the local team that worked with passion to host it last minute.”

Looking at its work in Argentina on sustainable and ESG finance, and broader to impact investment, Ayerra says: “We think it is a good thing for the market and for society. The world is going through very difficult times. You see what is happening in Chile, Bolivia and Hong Kong.

“It would be good if investors change the search for yield, which is a risk factor, to the search for change, which is a mitigant. So instead of seeking yield by taking more risk, the market gives them the tools to use their money for a change in the world.

RI asks how one could meaningfully incentivise investors to do this.

“Investors are the natural driver, and each investor can find its own incentive,” he says. “Insurance companies are suffering the effect of climate change. So they have to be interested in sustainable investment. Pension funds have long term horizons – so also need to incorporate sustainability into their investment decisions.

“Governments need the private sector to fund the investments needed before 2030. Banks are increasingly becoming aware of the risk of not considering ESG in their lending decisions, and retail investors are expressing interest for conscious investing. Fund managers are already highly committed. So each investor has their own role and the market should provide them with those products.”