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How to Integrate Social Factors into Business Models & Financial Intermediation

Environmental, Social and Corporate Governance (ESG) factors have evolved from externalities to key components of business models, and integral elements of corporate strategies.


You may have recently bought a new generation car and noticed that it does not have a spare tire. Why? Because manufacturers, with the goal of increasing efficiency by reducing fuel use, are making tires stronger and easier to repair without a resort to an annoying externality, like changing a tire.

The same has happened with Environmental, Social and Corporate Governance (ESG) factors, which have evolved from externalities to key components of business models, and integral elements of corporate strategies.

In recent decades, various events have contributed to raising awareness about this. The current pandemic, caused by the consumption and commercialization of wildlife, the increase in the intensity of natural disasters (forest fires, hurricanes, volcanic eruptions, etc.), pollution, racial discrimination and injustice, and numerous governance failures have highlighted the critical importance of these considerations.

All of these adverse events underscore the broad scope of non-financial risks, the vulnerability of businesses, and the need to foster a greater commitment to creating long-term value.

Numerous studies show the direct relationship between financial return and solid ESG performance, even during the pandemic. A 2020 study compared the financial performance (as measured by the S&P 500) of various companies to their maturity in managing ESG factors (as measured by the Sustainalytics ESG rating), and found a directly proportional relationship that is statistically significant.

At a global level, these paradigm shifts are shown in the Manifesto of the 50th Anniversary of the World Economic Forum in Davos (2020), “The universal purpose of a company in the Fourth Industrial Revolution” that has promoted “stakeholder capitalism”, or capitalism of interest parties. This model encourages entrepreneurs to interact with their stakeholders to identify and understand their needs and thus promote sustainability; that is, to create a balance between environmental, social and economic issues.

The change in the business model is reflected in the updating of widely applied management tools such as the comprehensive scorecard that proposes to include social and environmental value as well as financial value in a new paradigm of the triple impact matrix.

In most cases, the search for environmental, social and economic balances in the business model is publicly shared in sustainability reports, which in recent decades have become a conventional practice. In 2020, 96% of the 250 largest companies in the world reported on ESG factors; in 1999, only 35% of these did so.

These advances in integration and disclosure of ESG factors also respond to global agreements and commitments with sustainability such as the 17 Sustainable Development Goals (SDGs) and the Paris Agreement. There are regional and global efforts to achieve these objectives, including the ESG Disclosure Guides of the European Union, which are framed in the Sustainable Finance Disclosure Regulation.

Latin America and the Caribbean (LAC) must be prepared to respond and attend to these market trends. Financial intermediaries play a fundamental role there, since they determine the exchange of goods and services, and the flow of capital. And intermediation through stock exchanges plays a catalytic role in these flows.

Exchanges can provide tools and guidelines to encourage investments that take ESG factors into account and develop more active roles to move from an attitude of doing no harm to one that seeks to improve the financial performance of issuers, helping to achieve global goals. This is one of the mandates of the Sustainable Stock Exchanges Initiative (SSS) of which the Panama Stock Exchange has been a part since 2018.

IDB Invest is supporting the Panama Stock Exchange with the help of HPL, consultants in sustainable finance, for the preparation of a “Guide for the Reporting and Voluntary Disclosure of Environmental, Social and Corporate Governance factors”. The Guide aims to inform issuers in Panama about what, how, and what ESG aspects to report, meeting the information needs of investors in a flexible way, so that value can be added, adapting to the issuers’ operations and avoiding a prescriptive approach.

In other words, the Guide intends to provide BVP issuers with instruments so that they can easily introduce ESG criteria in their operations, putting together sustainability strategies and disseminating their efforts by following simple complementary steps throughout the process, as shown in this graph. :


This Guide is the product of a participatory process with more than 20 institutions that represented a microcosm of the capital markets in Panama, and also of a comparative exercise involving 14 exchanges and their ESG disclosure practices, and of the latest advances and trends in the development of frameworks, standards and regulation.

By integrating sustainability, represented by ESG factors, into their business strategies, companies, issuers and financial intermediaries can spur investors’ interest. And they can also position themselves as responsible economic engines that respond to the demands and interests of a public conscience interested in these factors.

The pandemic has highlighted the need to rebuild the economy from the private sector with a vision of sustainability. Just as the automotive industry innovated its business by introducing resilient tires and air pressure controls in its models, companies and financial intermediaries are promoting the integration of ESG aspects as an integral part of their business models. The Panama Stock Exchange is one of the pioneers in Central America in setting a clear guideline on how to integrate ESG aspects and report them.


Olga Cantillo

Executive Vice President and General Manager of the Panama Stock Exchange, SA, Olga Cantillo has 30 years of professional experience in the financial

Susana del Granado

Susana del Granado is an environmental and social officer at IDB Invest based Panama, responsible for evaluating environmental and social impacts and

Jan Eskildsen

Jan leads the Financial Institutions Team for Central America at IDB Invest, which he joined in 2017. He is responsible for originating and structurin

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