Banks in Latin America are under increasing pressure to develop financial policies that support the transition to a greener economy. Emerging regulations are targeting industries tied to carbon emissions, deforestation and biodiversity loss — but many banks are still falling short in implementing them, critics say.

Across Latin America, banks have failed to integrate sustainability regulations into lending, bond issuance and financial advisory services, according to a recent assessment of the region’s banking sector. While some policies are in place, they often fail to hold clients accountable or adequately protect natural ecosystems.

“Latin America’s financial sector stands at a critical crossroads in addressing the mutually reinforcing crises of climate change,” said the sustainable finance assessment published earlier this year by WWF. Specifically, it noted that nature-related risks, such as deforestation and biodiversity loss, haven’t received enough attention.

Wildlife populations in Latin America have declined more dramatically than anywhere else in the world, according to another report from WWF and the Zoological Society of London. The region’s most important biomes, such as the Amazon Rainforest and Gran Chaco, are losing huge swaths of forest every year. At the same time, countries continue to invest in extractive industries, contributing to climate change.

The financial sector exacerbates these problems by supporting environmentally harmful industries like mining, oil and gas, construction and agribusiness. Major banks have given companies in these sectors more than $395 billion over the last decade, according to a 2024 Forests & Finance investigation. Investment and credit in these industries is largely on the rise.

The WWF assessment examined the policies of 22 banks across Bolivia, Brazil, Chile, Colombia, Mexico and Peru, finding that only six banks have policies that acknowledge the “societal and economic risks” associated with environmental degradation.

Some of the banks in the assessment include Bancolombia, Itaú, Banco Fie, Santander Mexico and Interbank.

None of them periodically review their portfolios for nature-related risks, and only one of them includes negative impacts on marine ecosystems in its assessment of client activity.

None of the banks require clients in high-risk sectors, such as agribusiness, to adopt “no-deforestation” commitments, meaning businesses could be clearing forests with bank financing.

In Mexico, banks have stronger risk assessments for deforestation, the assessment found, but some still need to improve due diligence measures, such as conducting periodic reviews of clients previously cleared of deforestation risk.

Even as governments in the region work to meet international trade standards to eliminate deforestation, such as the EU Deforestation Regulation, none of the banks require clients to adopt no-deforestation commitments in their operations and supply chains, according to the assessment.

“By embedding responsible nature considerations into their strategies, banks can better anticipate risks from physical events, regulatory changes, unsustainable business practices, and potential credit defaults,” it said.

When it comes to carbon emissions, only two Latin American banks have made net-zero commitments for their lending portfolios, including policies like developing interim milestones for clients and requirements to publicly disclose progress on net-zero targets.

The assessment noted that banks need to monitor clients and find ways to implement “time-bound” corrective action plans for carbon emissions as well as environmental and social policies more broadly.

Some areas of Latin America’s financial sector have started moving in the right direction, though. The assessment noted that banks are following the lead of the rest of the world, as the EU, U.S. and Asian countries target corporate greenwashing and mandate climate disclosures from public companies.

“The emergence of global regulatory frameworks in recent years has also served to accelerate the shift towards sustainable finance, providing clearer guidance and greater accountability for financial institutions aiming to meet climate and biodiversity targets,” the assessment said.

Latin American banks like Bradesco, Itaú and Santander are starting to support sustainable supply chains and promote the “bioeconomy,” which could include everything from renewable energy and agroforestry systems to wastewater treatment and sustainable bioplastics.

In Brazil, financial authorities now ask banks to disclose how environmental and social issues and climate risks affect business. In Colombia, the main financial regulator now requires the disclosure of information on social and environmental issues.

These are steps in the right direction, the assessment noted. Banks need to keep developing environmental policies and see their implementation through.

“The path to an inclusive green economy requires financial institutions to embrace a triple-bottom-line approach, where economic, social and environmental outcomes are weighted equally,” the assessment said. “This means redefining risk assessment processes.”

Banner image: The Amazon Rainforest in Ecuador. Photo by Rhett A. Butler. 

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