Costa Rica Takes Steps to Enhance Climate Resiliency of New Loans
San José, Costa Rica - In an effort to promote sustainable finance practices, Costa Rica has introduced new regulations aimed at enhancing the climate resiliency of new loans. The country’s financial regulator, SUGEVAL, has worked with an international consulting firm to develop a green taxonomy in 2020 and will now require regulated entities to report on their environmental, social, and governance (ESG) factors.
New Reporting Requirements
The new reporting requirements will apply to all new credit operations and will be compulsory for regulated entities. However, the metrics-focused component of the regulation has been left out of the development process, which some critics argue may undermine the effectiveness of the initiative.
Industry Initiatives
In addition to government regulations, industry participants have also adopted various measures to drive the adoption of sustainable finance practices in Costa Rica. The Costa Rican stock exchange has created voluntary guidance for sustainability reporting and a green bond standard, while the country’s banking sector has adopted a green protocol aimed at promoting environmental sustainability.
Green Protocol
The Chamber of Banks and other Financial Institutions (Cámara de Bancos e Instituciones Financieras) spearheaded the development of the green protocol, which was adopted in October 2019. The protocol encourages signatories to implement five principles aimed at promoting environmental sustainability and responsible business conduct:
- Principle 1: Environmental consideration in credit operations
- Principle 2: Encourage sustainable infrastructure projects
- Principle 3: Promote renewable energy and energy efficiency
- Principle 4: Support sustainable agriculture and forestry practices
- Principle 5: Encourage responsible consumption and production patterns
Next Steps
As Costa Rica continues to promote sustainable finance practices, it will be important for the country’s financial regulator, SUGEVAL, to ensure that the new reporting requirements are effective in driving meaningful change. This may involve providing additional guidance and support to regulated entities as they implement the new requirements.
It is also important for industry participants to continue their efforts to promote responsible business conduct and sustainable finance practices. By working together, Costa Rica can build a more resilient financial sector that supports the country’s economic development while also addressing the challenges posed by climate change.
Challenges Ahead
Despite these efforts, there is still more work to be done. Costa Rica does not have regulation requiring asset owners or asset managers to disclose how they incorporate ESG factors across their portfolios. This lack of transparency makes it difficult for investors to make informed decisions about which companies and funds to support.
However, Costa Rica’s efforts to promote sustainable finance practices are a step in the right direction. By requiring regulated entities to report on their ESG factors and promoting responsible business conduct, the country is taking a proactive approach to addressing climate change and ensuring a more resilient financial sector.