New Generation Laws: Environment, Social, and Governance Law (“ESG Law”): What and How are the UK and Argentina doing?

Cecilia Cook (Buenos Aires-based Special Counsel in Corporate & M&A, O’Farrell Law Firm, Argentine-qualified attorney); Victoria Bunchicoff (Argentine attorney, Commercial Strategy Lead, Stripe, UK); Pilar Spotorno (ESG lawyer, Legal Advisor ERSG Limited, UK). 

I.              Introduction 

II.            Regulatory Framework

a.              Argentina

i.               Overview of existing ESG-related regulations and policies 

Whilst Argentina does not have specific ESG legislation, the legal system has all the necessary tools to embody and implement ESG principles.

The issuance of new regulations specifically aimed at this matter would make the fulfilment of ESG goals faster and easier, but even so, the lack of legislation is not an impediment to advance these objectives. The government is yet to fulfill citizens’ wishes of an effective application and enforcement of existing legislation in matters related to ESG issues as well as the insufficient public policies to turn these goals into reality.

ii.             Major governmental and non-governmental organizations involved in ESG 

In Argentina, the Argentine Constitution and ratified International Treaties (such as the Paris Agreement) constitute the main source of rules on ESG principles. Then there the specific laws and regulations:[1]

• On Environmental: Federal Law No. 25,675 (General Environmental Law);  Federal Law No. 27,520 (Climate Change Law); RG 517/2023 (Secretary of Energy: National Energy Transition Plan To 2030); and RG 518/2023 (Secretary of Energy: Guidelines and Scenarios for The Energy Transition To 2050).
• On Social: Federal Law No. 20,744 (Labour Contract Law); and Federal Law No. 26,529 (Law on Public Health)
• On Education: Federal Law No. 26,206 (National Education Law); and Federal Law No. 23,592 (Anti-Discrimination).
• On Governance: Comisión Nacional de Valores (Argentine Securities Commission) rules – Federal Law No. 27,401 (Criminal Liability of Legal Entities); and Federal Law No. 25,246 (Anti-Money Laundering).

The CNV actively oversees the incorporation of ESG criteria in financial disclosures made by publicly traded companies, ensuring transparency and accountability in the market. Meanwhile, the UIF is deeply involved in monitoring financial transactions to prevent money laundering and financing of terrorism, ensuring that businesses adhere to stringent ethical standards. Additionally, it should be pointed out that the Judicial Courts also have a pivotal role from an enforcement perspective, addressing violations and ensuring compliance with ESG principles.

iii.            Recent developments and future regulatory trends 

Recent developments on ESG focused on critical areas such as energy transition, health issues, and combating poverty. Looking ahead, regulatory trends are set to mainly focus on energy policy, environment, and intensify the efforts against corruption and poverty.

b.             United Kingdom 

i.               Overview of ESG regulations and mandatory reporting requirements

ii.             Role of key regulatory bodies such as the FCA

The Financial Conduct Authority (FCA) plays a crucial role in shaping and enforcing ESG regulations in the UK. For instance, the FCA requires that asset managers, regulated entities, as well as businesses with shares or deposit receipts listed on the FCA, submit mandatory climate disclosure reports aligned with the TCFD guidelines.[6]

iii.            Green Energy Finance Strategy

The UK Green Finance Strategy, last updated in 2023, aims to set out the framework for the United Kingdom to become the first ‘Net Zero-aligned financial centre’.[7] This policy mandates that UK financial firms must be consistent with pathways to domestic and global net-zero objectives.  A key aspect is the implementation of transparent data flows between financial services and end investors.

iv.            Evolution of ESG regulations and future outlook

Recent studies show that as part of the heightened regulations ongoing in Europe relating to ESG, the UK has also responded with extended regulation on ESG and sustainability in particular. The issue perceived is that this imposes internal pressure on risk and compliance teams, such as preventing cybersecurity attacks, or more related to the retail/supply chain businesses – issues with human right violations. 

III.          Anatomy of E-S-G progress

a.              Environmental Criteria 

i.               Argentina 

1.              Sustainable initiatives / specific regulation / policy

In Argentina, sectors such as agrifood, sustainable agriculture, non-deforestation, clean water management and energy efficiency are at the forefront of demanding and receiving key sustainable initiatives.[8] These public initiatives go along with new investment tools and tax policies proposed by current Argentine President Mr. Javier Milei’s administration, to be more broadly applied and aimed at boosting Argentina’s economic recovery.

2.              Role of renewable energy and sustainable practices including green finance

Argentina has embarked on an ambitious energy transition plan. According to Resolution 517/2023 National Energy Transition Plan To 2030 with the support of the Inter-American Development Bank (IDB) and technical assistance from Global Factor, a company specialized in the sector. This plan aims to change the country’s energy matrix towards cleaner and more sustainable sources, thereby reducing greenhouse gas emissions. [9]The objectives of this plan are manifold. Firstly, it aims to reduce energy demand by at least 8% through energy efficiency, surpassing 50% of electricity generation from renewable sources, achieving a 2% increase in electric vehicles in the vehicle fleet, reaching 1,000 MW of distributed renewable generation.[10]

Argentina is focused on offering an efficient framework for green finance, enabling the regulatory conditions for public and private issuance of green investment instruments. Argentina Sustainable Finance Framework provides a general framework for green bonds and loans, which will be aimed at financing eligible ESG categories

In alignment with this framework, the CNV promulgated  Resolution 788/2019 which establishes guidelines for the issuance of social, green and sustainable negotiable securities in Argentina. Since 2019, these instruments are listed in special panels in the Buenos Aires Stock Exchange, the Panel for Social, Green and Sustainable Bonds. Additionally, since 2021 the Panel of Bonds linked to Sustainability has been introduced, giving them more visibility to investors.[11]

3.              Role of fossil fuels, challenges and/or room for improvement 

Besides the ongoing energy transition plans, fossil fuels will still be a critical source of energy for both local and regional markets.  Within the oil and gas sector, Vaca Muerta formation stands out as an exceptional natural resource example. Located in the Argentine provinces of Neuquén, Mendoza, and La Pampa, it is the world’s second-largest natural reserve for unconventional gas and the fourth-largest natural reserve for unconventional oil.[12]

ii.             United Kingdom

1.              Overview of environmental policies, Climate Change Act, and net-zero targets

The UK established clear environmental aims conscious that it is not just the weather changes that are affecting the UK landscape. The Climate Change Act 2008 is the basis for UK’s approach to tackling climate change, targeting the effective reduction of carbon dioxide and greenhouse gas emissions, understanding that climate change poses risks and will bring changes to UK’s citizens. The Act also establishes the framework to deliver on these requirements and supports commitments made with the international community[13] 

2.              Green finance and sustainable investments

Green and sustainable finance imply that businesses actively participate supporting the transition to a low-carbon, sustainable economy through financial activities which will have positive environmental effects and promote long-term economic growth. For example, Stripe[14]’s “Stripe Climate” aims to reduce atmospheric carbon by investing in technologies that remove and capture CO2. Through Stripe Climate, customers can choose from two main ways to support these efforts: (1) Climate Orders; allowing businesses pre-order a specific number of tons of carbon removal via Stripe Dashboard or API. [15]The CO2 will be removed by companies in Stripe’s partner program, Frontier; (2) Climate Commitments which involves directing a percentage of your revenue towards carbon removal projects.

b.             Social Criteria 

i.               Argentina 

1.              Labour laws, human rights, and social justice issues 

Argentina’s robust legal framework enshrines the right of universal and cost-free education across all levels, guaranteeing access to education, affirming a secular, inclusive educational system based on the values of “freedom, peace, solidarity, equality, respect for diversity, justice, responsibility and common benefit”.[16]

2.              CSR and DEI in Argentina-operating companies 

Corporate social responsibility (CSR) and diversity, equity, and inclusion (DEI) are non-economic concepts that have significant economic implications. CSR is based on the idea that companies, and especially profitable and successful corporations, not only have the obligation to conduct their businesses in a legal and ethical way but also must create a positive impact in their communities and the environment. This leads us to the B Movement and the emergence of B Corps in Argentina. As for today, there are more than 300 B-certified companies in Argentina.[17]

DEI has been a substantial principle of Argentine legislation since its inception. The Argentine Constitution guarantees equal remuneration for equal work[18]; while Federal Law No. 23,592 provides “Protection against discrimination” punishment for discriminatory acts. Companies are not alien to these mandatory rules, but even though mainly driven by the community and market pressure, they have been working hard in the last two decades to make these principles true, and there is still much room to make things better.

Looking at listed companies, according to CNV reports, in 2022, women held 14.7% of board positions in companies that participate in the Argentine capital market. Since 2013 (when the CNV began preparing said reports) women’s participation grew by around 50%.[19]

Looking at companies with the highest turnover, according to a 2023 private report (KPMG and Mercado)[20] on the participation of women in boards of directors of the 1,000 companies with the highest turnover in Argentina, out of the 6,153 board members (regular and alternate) of the boards of directors of the mentioned companies, only 1,077 are women (17.5%) and the remaining 5,076 are men (82.5), while in 93.6% of presidencies are occupied by men, leaving only 6.4% for women.[21]

ii.             United Kingdom 

1.              Overview of social governance, including DEI initiatives and CSR 

In the United Kingdom, progress needs to be made. Regulators are actively driving the diversity and inclusion agenda. For instance, the United Kingdom’s financial services regulators released consultation papers in 2023 with suggestions for how to improve diversity and inclusion in the industry. If the new regulations are implemented as intended, they will represent one of the largest efforts to date by a regulator to change the D&I landscape in a given industry, and they will serve as a model for other industries, sectors, and regions to follow. 

Although the D&I proposals by themselves are not novel, their scope is bold, calling for in-scope companies to publish diversity strategies; establish mandatory diversity targets; release yearly diversity data covering a wide range of demographics, including sexual orientation, religion, and ethnicity; and report on their inclusivity. Many businesses will be re-evaluating their DEI strategies and practices to better comply with the regulatory requirements in advance of the authorities’ anticipated publication of a final policy statement in 2024. [22][23]

c.              Governance Criteria 

i.               Argentina 

Listed and large international companies are more involved in institutionally implementing the good practices of corporate governance, following the G20/OECD standards (Principles of Corporate Governance). Even still, market drivers and public opinion are pushing all companies toward better and enhanced transparency and accountability in corporate governance practices.

Key legislation includes Federal Law No. 19,550 (Argentine Companies Law); in the CNV rules for companies under the CNV’s jurisdiction; Federal Law No. 27,401 (Criminal Liability of Legal Entities) and  Federal Law No. 25,246 (anti-money laundering).

The CNV rules follow the G20/OECD standards (Principles of Corporate Governance), in rules such us independent directors and syndics, transparency, and disclosure of relevant facts, among others. In 2019, the CNV, through RG 797/2019, updated the Corporate Governance Code, requiring the submission of annual reports to shareholders and the general public by the administrative bodies of companies under CNV supervision. [24]

With regard to the compliance scheme, the new code has replaced the “comply or not, explain” mode for the “apply or not, explain,” meaning that companies that decide not to apply certain practices may, nevertheless, comply with the compliance standards.

In 2018, Argentina also established corporate criminal liability (Criminal Liability of Legal Entities) for the commission of crimes of corruption and bribery (Federal Law No. 27,401). It also established control mechanisms and rules and guidelines to prevent such crimes, such as implementing an integrity program with a code of conduct in the company.

ii.             United Kingdom 

1.              Brief examination of corporate governance codes

The UK Corporate Governance Code (the Code) is a key framework designed to promote high standards of corporate governance within the United Kingdom. Consisting of principles and provisions that apply to all companies listed on the London Stock Exchange, it covers five key areas: (1) Board Leadership and Company Purpose; (2) Division of Responsibilities; (3) Composition, Succession, and Evaluation; (4) Audit, Risk, and Internal Control; (5) Remuneration

As for the principles, the Code operates on a “comply or explain” basis, which means that companies must comply with its provisions or explain why they have not done so. This provides flexibility while maintaining high standards.

Companies are required to include a report on their governance arrangements, disclosing how they have applied the Code’s principles and detailing any deviations from its provisions.

2.              Role of board diversity, transparency, and accountability

With the implementation of the new FCA’s listing standards board diversity and inclusion have grown in importance as governance issues for UK-listed companies. These changes are designed to promote a wider consideration of diversity at the board level by increasing disclosure requirements for in-scope companies.[25][26]Although there remains a significant gender gap on boards, especially within leadership positions, progress has been made in improving gender diversity, as women representation on the FTSE 350 board has now reached 42% (as of February 2024). The current percentage of women in leadership roles on FTSE 350 boards currently sits at 35%, and companies are strongly urged to increase their efforts to reach the 40%-women-in-leadership target by the end of 2025, from The FTSE Women Leaders Review.  [27]

Ethnic diversity on boards falls short when compared to gender diversity, and the lack of representation of minorities poses challenges in terms of encouraging inclusivity and calls for example more inclusive recruitment and promotion practices.[28]

IV.          Conclusion 

The comparative analysis underscores the importance of tailored yet ambitious ESG policies in fostering sustainable economic growth and improving societal outcomes. As both countries continue to evolve their ESG landscapes, they contribute valuable insights and practices to the global sustainability dialogue.

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[1] Each governmental office is responsible for the implementation of the ESG policies within its area of competence. Some of them have a more active role, such as the CNV and the Unidad de Información Financiera (Financial Information Unit).

[2] Companies with over 500 employees or annual revenue exceeding £500 million. What are the current ESG Regulations in the UK? (azeusconvene.co.uk). This framework is complemented by regulations and the Listing Rules and Disclosure Guidance and Transparency Rules for listed companies, as well as corporate governance such as the UK Corporate Governance Code 2018 for premium listed companies, the Wates Principles for large private companies, and the UK Stewardship Code 2020 for asset owners, asset managers, and service providers.

[3] ESG reporting requirements in the UK (TaylorWessing)

[4] Task Force on Climate-related Financial Disclosure (TCFD) -aligned disclosure application guidance – Phase 1 and Phase 2 – GOV.UK (www.gov.uk)

[5] UK Sustainability Reporting Requirements in 2024 – Laws, Rules & Regulations (brightest.io), 2024 For UK organizations that satisfy the qualification criteria, Energy Savings Opportunity Scheme (ESOS) is a mandatory energy-assessment scheme that needs to be completed every four years. These evaluations involve audits of the energy used by their transportation, industrial operations, and buildings in order to pinpoint affordable energy-saving strategies.

[6] The FCA sets out comprehensive requirements for disclosures relating to ESG and climate change matters. To tackle misleading claims about the environmental benefits of products or services, the FCA will implement the Anti-Greenwashing Rule, effective from 31 May 2024. This rule applies to all FCA-authorized firms and aims to ensure that any statements regarding the environmental benefits of investments or financial products are accurate and verifiable.

[7] UK Green Finance Strategy

[8] As pointed out in the World Bank 2024 Report. “Towards a More Competitive, Inclusive and Resilient Agrifood Sector in Argentina ”: “Argentina is a global leader in agrifood production and exports. Through an improved policy environment, its agrifood sector can play a larger role in the country’s economic recovery, generating jobs, incomes, food security, and resilience and benefitting all its citizens and the environment (…) A new strategy for sustainable agrifood development can only succeed if implemented in a macroeconomically and fiscally sustainable manner.” 

[9] Global Factor, The government of Argentina has approved the National Energy Transition Plan to 2030 https://www.globalfactor.com/en/the-government-of-argentina-has-approved-the-national-energy-transition-plan-to-2030/

[10] Global Factor, The government of Argentina has approved the National Energy Transition Plan to 2030 https://www.globalfactor.com/en/the-government-of-argentina-has-approved-the-national-energy-transition-plan-to-2030/

[11] More information could be found in ‘Sustainable Debt Market in Argentina’ (CNV 2022 Report)

[12] ¿Qué es Vaca Muerta? | No convencional | YPF en Vaca Muerta (YPF Argentina)

[13] Recent studies show that as part of the heightened regulations ongoing in Europe relating to ESG, the United Kingdom has also responded with extended regulation on ESG, and sustainability in particular. The issue perceived is that this imposes internal pressure on risk and compliance teams, such as preventing cybersecurity attacks, or more related to human rights violations within the retail and supply chain sectors.

[14] Stripe is a technology company that builds economic infrastructure for the internet. In simpler terms, it is a business that provides tools and services to handle online payments and transactions. Many online businesses use Stripe to accept payments from customers, manage subscriptions, and handle other financial processes smoothly and securely.

[15] For example, a company dedicated to sell eco-friendly products decides to offset their shipping emissions. Through Stripe, they can pre-order 100 tons of CO2 removal, paying through the Stripe’s Dashboard. The carbon removal will be carried out by a company within Frontier’s portfolio, ensuring that the environmental impact is effectively addressed through Stripe’s comprehensive platform.

[16] Article 14 of the Argentine Constitution and Federal Law No. 26,206 (National Education Law) are the main legislation pieces, as mentioned above, underpinning Argentina’s educational framework.

[17] Looking for a B Corp? (B Corp) B Corps are companies that work toward a positive impact in their communities, prioritising social and environment goals besides financial profitability. They are accountable not only to their shareholders but to all stakeholders, including: workers, customers, suppliers, communities, and the environment. They meet high standards of SGI performance, conducting their business with a commitment to responsibility and transparency.

[18] The Argentine constitution, article 16, reads: “Equality before the Law, all its inhabitants are equal before the law, and admissible in employment without any other condition than suitability.”

[19] Informe sobre la participación femenina en directorios (2023, CNV)

[20] See Women on Boards, KPMG/Mercado Report 2023.

[21] Sigue baja la representación de mujeres en la máxima conducción de las mil empresas argentinas que más venden (2023, KPMG)

[22] See Practical Law: Diversity and inclusion (D&I) UK reporting requirements for companies . Several regulations mandate D&I reporting requirements, including: 

• The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (SI 2017/172) (GPG Regulations) apply to large private- and voluntary-sector employers (defined as those with 250 or more employees on 5 April of each year) (regulation 1, GPG Regulations). 
• Employee policies and number of persons of each sex: Companies (other than those subject to the small companies regime) must prepare a strategic report annually in accordance with sections 414A to D of the Companies Act 2006 (CA 2006). 
• Policies on Employment of Disabled Persons: Directors are required to prepare a directors’ report for each financial year, detailing the company’s policies on the employment of disabled persons. There are exceptions for micro-entities and small companies, as set out in section 415 of the CA 2006.  With new DEI proposals on the horizon and existing regulations like the Equality Act and Companies Act shaping corporate policies, businesses in the United Kingdom are increasingly being held accountable for their social governance practices.

[23] Practical Law Toolkit ESG and sustainability toolkit (UK)

[24] This report on the Corporate Governance Code is a separate report to be submitted together with the annual financial statements of companies under CNV jurisdiction. SMEs are not obliged to submit this report, though they are encouraged to follow its guidelines.

[25] The rules apply to both UK and overseas issuers with equity shares listed on the premium or standard segment of the FCA’s Official List, including closed-ended investment funds and sovereign-controlled companies.

[26] Holly O’Neill, Diversity on the boards of UK-listed companies: What are the challenges & benefits of complying? Ocorian, March 7, 2024.

[27] Women Leaders, KPMG, Lloyds, February 2024 Report (2024, FTSE)

[28] Practical Law Toolkit ESG and sustainability toolkit (UK)