Background

México is characterized by its high vulnerability to the effects of climate change, as it is situated between two oceans, with a coastline of 9,330 km, and nearly half of its population living in poverty. Additionally, it is the largest emitter of greenhouse gases (GHG) in Latin America (excluding deforestation) and the second-largest emitter in terms of per capita emissions, after Chile. These conditions could disproportionately affect Mexicans due to the physical and transitional risks stemming from climate change.

As a result, the Mexican government has been a signatory of international agreements, such as the Paris Agreement of the UN, committing to significant actions to reduce the nationally determined contributions (NDC) of GHG and black carbon. To this end, Mexico has developed a Climate Change Vulnerability Atlas (ANVCC), which consists of a series of maps showing the current and projected territorial vulnerability of the country to climate change impacts. This helps measure the NDC and make informed decisions regarding adaptation and meeting established reduction targets.

In this regard, four working groups have been created to analyze and address vulnerabilities related to the population, infrastructure, economic activities, and the natural system. The key sectors for NDC mitigation are identified as transportation, electricity, residential, oil and gas, industry, agriculture, and waste.

Despite these efforts, Mexico's progress in meeting its NDC commitments has been rated as highly insufficient. This highlights that the willingness of international agreement signatories is not enough; government and market incentives and instruments are required to mobilize capital toward more sustainable investments including environmental, social and governance-ESG) related investments. Hence, ESG Investment Funds and financing have significantly increased in recent years.

Mobilizing Financial Capital

In 2016, Mexico voluntarily created the Mexican Sustainable Finance Council (CMFS) as a non-profit civil association that brings together participants from the financial system to promote best practices in sustainable finance. Its creation responded to the growing need to develop a more sustainable and resilient financial market, equipping its main actors with the necessary tools and knowledge to address environmental and social challenges while considering risks and opportunities across all sectors of the economy.

The CMFS aims to drive structural change in business models, acting as a bridge to provide market information, create long-term value, promote efficient resource use, and facilitate the transition to a low-carbon economy.

The main objectives of the CMFS are:

  • Foster dialogue and design strategies to boost financing and investment in assets and projects that generate positive environmental and social impacts.
  • Discuss the need to address new financial risks and challenges related to ESG factors.
  • Propose incentives and mechanisms that lead to favorable changes in market practices, available investment vehicles, and existing regulations.
  • Form strategic alliances with multilateral agencies, local and international institutions, academics, and experts in green and sustainable finance to promote capacity-building through the exchange of best practices and financial education programs.
  • Promote public policies in collaboration with authorities, regulators, and stakeholders that foster the development of a sustainable financial market, enabling long-term value creation, sector resilience, efficient resource use, and the transition to a low-carbon economy.

In 2020, the Mexican government's Financial System Stability Council (CESF) resolved to create the Sustainable Finance Committee (CFS), whose main objective is to support the CESF by conducting analyses, evaluations, proposals, and recommendations on sustainable finance. The CFS has created four working groups to advance the Sustainable Finance agenda: the Ministry of Finance for the development of a sustainable taxonomy, the National Commission for the Retirement Savings System (CONSAR) to capitalize on opportunities for capital mobilization, the Bank of Mexico for ESG Risk Measurement, and the National Banking and Securities Commission (CNBV) for information disclosure and ESG standards adoption.

Mexico now has a sustainable taxonomy, an ESG risk measurement model, and significant capital mobilization through the Retirement Fund Administrators (AFORES) via CONSAR. The CNBV has yet to announce the regulations to be established in this area.

Accounting Regulation

In Mexico, companies listed on a stock exchange or those of public interest have adopted international standards, meaning that ESG matters will comply with ISSB 1 and 2 issued by the ISSB of the IFRS Foundation. However, non-public or non-public interest companies will follow the guidelines provided by the Mexican Council for Financial and Sustainability Reporting Standards (CINIF), which has played a key role in developing accounting standards necessary for Mexican companies, particularly small- and medium-sized enterprises, to prepare high-quality financial information reflecting the realities of the context in which they operate.

Unlike many other jurisdictions globally, CINIF has opted to adopt the International Standard issued by the IFRS Foundation, aiming for maximum convergence while respecting significant local differences.

In terms of International Sustainability Standards, CINIF's adaptation strategy consists of two stages:

  1. The issuance of NIS A-1, Conceptual Framework for Sustainability Reporting Standards, and NIS B-1, Basic Sustainability Indicators. Both were developed in 2023, exposed for public comment during the same year, and promulgated on May 13, 2024, with an effective date of January 1, 2025.
  2. The issuance of specific NIS standards focused on disclosure requirements for financial risks and opportunities related to sustainability, aiming for the highest possible convergence with the International Sustainability Disclosure Standards (IFRS-S) issued by the International Sustainability Standards Board (ISSB) of the IFRS Foundation. This second stage began in 2024 and has no time limit due to the broad and continuously evolving scope of sustainability factors.
A diagram showing the Stage 2 Disclosures

Thus, the regulation regarding ESG information disclosure in Mexico would be as follows:

A chart showing which ESG regulations to use

NIS B-1, Basic Sustainability Indicators

NIS B-1 is designed to enable Private Entities to begin reporting ESG information, regardless of whether it has financial materiality. For this reason, it requires the determination and disclosure of universally applicable metrics that allow an entity to clearly understand its sustainability status and the implications for its performance in this area.

The Basic Sustainability Indicators (IBSO), derived from the UNCTAD Basic Indicators Guide, are considered a starting point for identifying the risks and opportunities related to an entity’s sustainability. Consequently, they form the foundation for implementing the necessary infrastructure to manage these risks, develop a mitigation strategy, and provide sustainability information that meets the users' needs.

A total of 30 indicators must be disclosed, 23 of which are quantitative and 7 qualitative:

A chart showing qualitative and quantitative indicators of ESG

For each quantitative IBSO, it is required to determine and disclose its absolute and relative value; the standard specifies how to calculate those values. NIS B-1 provides possible information sources that can be consulted for each IBSO to obtain the data necessary for its calculation or determination.

The standard establishes that an entity must disclose the IBSO determined at the end of the reporting period as part of the notes to its financial statements, and these should pertain to the same economic entity presenting the financial statements.

Quantitative IBSO can be disclosed using the format provided in Appendix B of the standard, while qualitative IBSO can be disclosed using the format provided in Appendix C.

It is required that the IBSO be disclosed in comparison with the information from the previous year. However, in the transitory provisions, the standard mentions that during the first year of application, entities are not required to present prior period information in comparison with the current period.

As a practical solution, the standard offers two disclosure reliefs for the IBSO: one for Scope 3 greenhouse gas (GHG) emissions and another for the Sustainable Investment indicator. Companies may opt to include these in their sustainability information until the end of 2026, and the standard specifies that those who apply this relief must disclose this fact.

The standard allows an entity to disclose its goals and objectives in relation to the IBSO.

Conclusions

The new Sustainability Standards from CINIF represent a significant step towards improving transparency and corporate accountability in Mexico. By developing and promoting these standards, CINIF is helping companies align with international best practices and contribute to sustainable development.

The Basic Sustainability Indicators (IBSO) represent an effort to promote and standardize sustainability information in Mexican companies. This initiative is designed to integrate sustainability principles into business management and provide a coherent framework for disclosing environmental, social, and governance (ESG) information.

While there are challenges in its implementation, the opportunities for companies that adopt these standards are substantial, including better market positioning and attracting responsible investments.

As Mexico advances on its path toward sustainability, CINIF Standards will play a crucial role in transforming business practices.

A women with brown hair and a pink shirt smiling
Sylvia Meljem

PAODC and Membership Committee Member

Sylvia Meljem, CPA, became a PAODC and Membership Committee member on January 2021, having previously served as a IAESB technical advisor from 2016 to 2018 and IAESB member from 2007 to 2012.

Ms. Meljem is a faculty member of ITAM, one of the most prestigious universities in Mexico, where she has occupied several positions for more than 30 years, including Accounting Program Director, Chair of the Accounting department, and from 2012 to present, Accounting Research Center Director.

She has published articles in national and international journals along with several books, including “Accounting of Costs and Strategy Management,” co-authored with Carlos Mallo, Robert S. Kaplan, and Carlos Giménez.

Additionally, she was International Affairs VP of the Instituto Mexicano de Contadores Públicos, A.C. (IMCP), she is president of the Academic Subcommittee of Corporate Governance Council and member of the editorial board of the IMCP magazine, Contaduría Pública.

For her outstanding career in the accounting profession, she has received several recognitions form IMCP and CCPM as the Refugio Roman Almonte, and award recognizing female accountants and commemorating the 100th anniversary of International Women’s Day.

Ms. Meljem earned a doctoral degree in management sciences, a master´s degree in business, and a bachelor’s degree in accounting from ITAM.