Guidelines for a Latin American Code of Corporate Governance: an update in line with the challenges of corporate sustainability.

Corporate governance should be understood as a management framework to strengthen the institutional capacities of companies, as well as a tool that facilitates transparency, accountability and the effectiveness of decision-making processes; Likewise, it provides clear rules between the main actors: owners, Board of Directors, senior management and others.stakeholders.

As part of CAF's development agenda, corporate governance is one of the many instruments that the institution has to strengthen the business fabric, always with a vision of inclusion and long-term sustainability. Through the Corporate Governance Program, CAF seeks to contribute to responsible competitiveness, at the individual level of companies (private and state) and at the aggregate level, together with supervisory and regulatory entities. To this end, the Program develops conceptual and practical tools that it disseminates to raise awareness about the importance of the issue in the development of the region.

Along these lines, the flagship document of the Program is the “Guidelines for a Latin American Code of Corporate Governance” initially published in 2004, under the premise of being a practical guide for voluntary application by any type of company, aligned with the corporate governance principles of the OECD. Since its inception, the objective of the Guidelines has been to be a document with recommendations based on internationally accepted standards, which serves as a framework of reference so that companies can carry out an assessment of their Government Model and develop an Action Plan based on their needs. own reality.

Since its first publication 19 years ago, there have been two minor updates and one in-depth revision (2013). The 2023 edition has had a thorough review, based on three considerations:

• A business environment that tends towards increasingly rapid and challenging changes, generated, among other elements, by dizzying technological advances and the growing role of company stakeholders. Therefore, they must identify new strategic risks with an impact on their sustainability and the ability to fulfill their corporate purpose; and under this scenario, adapt their government systems to have efficient structures and controls that allow them to make better and timely decisions.
• The growing expectations regarding the responsibility of companies in environmental, social and governance (ESG) aspects and climate change imply that management decisions must incorporate ESG aspects into their business objectives, and be an integral part of the corporate strategy.
• The experiences collected by the Corporate Governance Program in the last ten years, in supporting the implementation of recommendations for improvements in the corporate governance of our clients.

Taking the above into account, the most significant contributions in this update were:

• The inclusion of ESG and climate change aspects as a transversal element of corporate governance, thus making them part of the responsibilities of the Board of Directors. In particular, in the incorporation of the ESG agenda in the corporate strategy and indicators.
• The review of the dynamics, composition and approach of the Boards, to allow greater contribution and generation of value. This includes the role of the Board of Directors in the ethical and integrity leadership of the company, introducing, in turn, complementary elements in terms of control architecture and risk management, particularly related to the role of the Board of Directors and the Audit Committees and of Risks.
• Deepening the company's interactions with its stakeholders, including identifying and prioritizing those internal and external actors that may have an impact on the company's performance, to generate relationships based on principles of relevance, transparency and trust.
• The incorporation of an annex referring to the corporate governance of non-profit entities, with the recognition that their governance system must ensure the fulfillment of its purpose, through the efficient use of the resources contributed by founders, associates or affiliates, always under principles of transparency, ethics and accountability.

Regarding the challenges of these Guidelines, it is expected to continue with the awareness-raising processes in their use as a guide with specific recommendations, not only valid for companies listed in the capital markets, but also for medium-sized and family-owned companies not listed. Likewise, this update opens an opportunity to promote and deepen a sustainability agenda at the corporate governance system level of companies: through the incorporation of specific responsibilities at the Board level, the identification of ESG and climate change risks and the interaction more fluid with interest groups. Finally, the challenge of promoting financial institutions in the region as promoters of corporate governance among their clients continues, in such a way that its application promotes improvement in the direction and management of companies, reducing their level of risk, and having a positive impact. in the banks' asset portfolio.