How ESG is taking center stage in Latin America

In recent years, we’ve seen the beginnings of a far-reaching sustainability transition among corporations in Latin America that is slowly beginning to move the needle on creating fairer, more inclusive economies for all.

As a region, Latin America bears an outsized brunt of climate change, with extreme weather phenomena from hurricanes in the Caribbean to El Niño on the Pacific coast, as well as rising sea levels and poor air quality, all of which make environmental considerations all the more important.

But it is also a region where enormous progress can be made in other sustainability metrics, such as improving rural livelihoods, contributing to increased gender equality, and boosting the participation of indigenous and minority populations in the economy.

In recent years, we have seen a growing number of companies across Latin America start to focus on these issues. International Environmental, Social and Governance (ESG) best practices are being integrated into the region’s corporations, and it’s happening across all industries. The IndexAmericas^[1], created by the Inter-American Development Bank (IDB), highlights the top 100 sustainable firms operating in Latin America and the Caribbean, measured against environmental, social, and corporate governance criteria, as well as on their performance in areas such as gender equality and diversity.

The index has largely been made up of foreign multinationals since its inception, but in the last three years, the number of Latin American firms has increased by almost 30%, demonstrating just how much the issue of corporate sustainability is gaining force in the region.

Another example of this growing trend can be found in the Dow Jones Sustainability MILA Pacific Alliance Index. It measures best-in-class companies across Chile, Colombia, Mexico and Peru that fulfill certain sustainability targets better than the majority of their peers within their respective industries. When it was first set up in 2017, only 42^[2] companies met its criteria. Today, that number has grown to 116^[3].

Sustainability is also becoming a major focus for the region’s investors, who according to a recent study by Natixis^[4] display higher demand for ESG than any other region in the world, as they believe that it can help them enhance risk adjusted returns as well as help them align their assets with organizational values.

When we speak to our partners around the region, what we hear is that incorporating ESG into business models is not a fad. Companies and investors alike are seeking to achieve the triple bottom line of social, environmental and financial success, and the trend is picking up steam.

GREEN ALONE IS NOT ENOUGH

Switching to renewable power, especially in a region as abundant in solar and wind energy as Latin America, is one possibility for companies seeking to reduce their environmental footprint.

Thanks in large part to the government‑led efforts to increase the use of renewables, the region is making solid progress towards its commitments under the Paris Agreement.

But simply “going green” doesn’t equate to sustainability. Sustainability is determined by three different parameters: environmental, social and financial, and if a corporation only switches to renewable energy without addressing the wider implications, they are missing an opportunity.

Latin American corporations today want to be assured of a long-term solution that not only guarantees the availability of clean electricity without hampering the access of others to resources as well as acting as a force for good in society. As a result, an increasing number of companies across the region are not only starting to explore the possibilities of renewable power purchase agreements, but are also beginning to question where the finance for those projects comes from, how the workforce on those projects is structured, and how the developer operates within local communities.

THE ATLAS APPROACH

In our experience, we have discovered that there are no truly quick wins in sustainability. That’s why Atlas has, since the very beginning, dedicated large amounts of resources to ESG, because we believe that real sustainability comes from making strategic investments for the long term.

A major focus for us is social sustainability. When working with local communities, we focus on promoting local welfare increase. In our view, building relationships with the local community doesn’t just mean handing out footballs or school uniforms; it means being cognizant of the fact that the asset will be part of the community for 30 years, and that, if managed correctly, it can represent an opportunity for job creation and income generation. We take on board all of the implications around generating power, and we take comfort in knowing that our presence boosts the local economy wherever we are.

As an example, in June 2020, Atlas Renewable Energy and Dow signed a large-scale solar energy contract in Brazil. The amount of energy generated will cover the equivalent of the power needs of a city of over 750,000 inhabitants, and will result in the avoidance of around 35,000 metric tons of CO2 emissions per year. In addition, the project includes a commitment to gender inclusion and rural employment generation, with training provided for the local female workforce to enable them to access the better-paid job opportunities presented by the project. During the construction of this project, we expect to hire three to four times more women than are usually employed in these developments, with 70% of the total workforce expected to be from the local area.

Meanwhile, at our Guajiro solar plant in Mexico, we have partnered with The Pale Blue Dot, a Mexican organization that promotes educational programs through the use of technology in schools a
nd community centers, to provide more than 400 students from the local community with internet access and digital classrooms.

Financial sustainability is also a key contributing factor to how we do business. We work with impact investment partners such as the World Bank Group’s Clean Technologies Fund and the Inter-American Development Bank’s IDB Invest, and seek wherever possible to tap in to favorable interest rates by linking our funding to our environmental and social performance.

Being sustainable also represents risk mitigation, all the way through the project, from ensuring the transparency of the supply chain of components to achieving bankable projects that have gained the support of the communities in which we operate. This ensures that we can assist our corporate partners in getting their sustainability objectives over the line by providing them with the environmental, social and financial benefits they need in order to meet their obligations.

^[1]https://indexamericas.iadb.org/en/Aboutus
^[2]http://worldofficeforum.com/wp-content/uploads/2017/11/dow-jones-sustainability-index-mila-constituents.pdf
^[3]https://www.spglobal.com/spdji/en/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&indexId=91920628
^[4]https://www.spglobal.com/spdji/en/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&indexId=91920628