The Green Summit Mexico 2022 marked our first Latin America-based event associated with our new Global Green Guide and brought together leading practitioners and in-house counsel from across the country and region to discuss the legal sector’s engagement with a green transition.
After a welcome address by Anna Bauböck, editor of the Global Green Guide at The Legal 500, we heard some opening remarks from Guillermo Perez Santiago, partner at Galicia Abogados S.C., who got straight to the point: ESG is mainstream now and will not disappear. While acknowledging that improving sustainability is an undertaking and a journey which may be daunting, he invited the audience to take the first step and suggested this event would hopefully lend some perspective with much to learn from the trailblazers on the upcoming panels.
Managing reputational risks and crisis management – ESG
The first panel was moderated by Alvaro Vértiz, COO at BLACKROCK, and addressed how to manage ESG reputational risks and crisis management. Vértiz kicked off the session with some thoughts around the notion of reputation, including the common quote, ‘It takes a life to build it, but a day to destroy it’, and the idiom, ‘Your reputation precedes you’. He shared some facts and figures with audience: Eight out of ten internet users in the US say that negative information they read around a company potentially changes their mind about the consumption of products; global executives attribute 63 percent of their company’s market value to their company’s overall reputation; and 79% of investors say the way a company manages ESG risks and opportunities is an important factor in their investment decision making, thereby identifying ESG as a factor in public image.
Armando Ortega, president of the Mining Task Force at the Canadian Chamber of Commerce Mexico (CANCHAM), agreed that without considering reputation, it is difficult to successfully run a company. Back in the CSR era, it was considered a needed or inevitable cost, but the priority was to make good profits. Now there has been an evolution and awakening for companies to become truly ‘responsible companies’; now companies inject their own values within the cost and supply chains and provide a footprint in the community. In the mining sector, specifically, during the last years companies have achieved an awareness and internalisation within teams that reputation is an essential tool.
Mariuz Calvet, head of Sustainable Finance Mexico & LatAm at HSBC, discussed the meaning of sustainability, often seen as consisting of the three components of people, planet and profit. According to Calvet, if sustainability also means identifying main risks and profitability, then it is in fact nothing that special but just the basic way companies work. Crucially, she pointed out that there is a great risk of not managing ESG topics within the company: the cost of inaction is a greater cost. Furthermore, it will affect everybody, regardless of size, sector and geography. In connection with the prevalent risk of greenwashing, Calvet advised that companies need to be more curious, identify strategic initiatives which have traceable quality data behind them, instead of just running marketing campaigns.
Daniel Linsker, partner at Control Risk Mexico, drew attention to the relationship between risk, ESG and reputation; in his opinion, today you cannot differentiate between these three components. He also questioned who owns the risk – it’s hard to figure this out, as reputation usually falls somewhere in the middle of all the different departments. Nobody seems to own the risks, but they have a catastrophic impact. He further stressed that one cannot take the risk of not doing anything, but if you do something, it must be committed and full-on. As an example, he pointed to Tesla – a seemingly sustainable and responsible company because it manufactures electric vehicles – being kicked out of most ESG indices due to racial discrimination and poor working condition claims. Linsker stressed that while everyone wants to focus on the E, don’t forget the S and G.
Ortega added a few more thoughts about the hyperregulated Mexican mining sector. There is an awareness that the sector needs to reduce its footprint, and water management, for example, has been at the forefront of these efforts. Mining companies have drastically reduced the use of fresh water and are giving communities fresh water alongside some other technical innovations as well as energy more frequently coming from renewable sources.
In a discussion around sustainable capitalism, Calvet proposed that it is another one of many concepts meaning that we need to build a long-term economic and social structure which meets today’s needs while taking into account resources for next generations and handling the environmental footprint and impact on society. She stressed that companies are being held responsible for much of the damage done, and business as usual is no longer an option. According to the notion of corporate citizenship, companies should be responsible citizens who can contribute to society. In Calvet’s opinion, the way we view economy and society today is clearly changing. She pointed to the B Corp movement and certification as an example. Companies create value for stakeholders, and the stakeholder is the planet and biodiversity. Companies need to be perceived as force for good, but this also means having to consider the full supply chain. In the banking sector, this would include who exactly the bank finances. Sustainable practice in sustainable capitalism needs to go beyond the company’s products and operations and into every piece of services and supply chains.
Manuel Rodríguez Arregui, CEO at AINDA (Energy & Infrastructure), voiced his opinion that we are not putting enough emphasis on responsibility. An emphasis on reputation suggests that it’s all about looking good – which isn’t necessarily about being responsible. According to Rodríguez Arregui, we need to start with the rule of law, which isn’t about complying with the law but making sure everybody complies with the law. He believes this implies shifts which are not within the Mexican culture. He gave the example of whistleblowing: whistleblowing doesn’t look reputationally good but it’s the responsible thing to do. He stressed, if you can add value for the rule of law to happen, you ought to step in, and if we are to talk about ESG in a company, we need to start with the rule of law. As another piece of advice, he emphasized that what you don’t measure, you don’t improve, and while many believe ESG is expensive, in his opinion this is not true.
Towards the end of the discussion, Ortega shared his experience of managing the consequences of a cyanide spill years ago, and Linsker gave some final advice about crisis management: Companies need to be prepared – most companies will experience a crisis every three to five years, and the market will judge how the company respond to a crisis. According to statistics, if the market thinks the company responded well, the share price goes up; otherwise, it goes down. Linsker also stressed that no matter what the crisis is, as crisis manager you manage the impact not the incident.
Lastly, Rodríguez Arregui commented that when we talk about ESG, we need to understand that in Europe, companies start with a good level of G, and while the S may not necessarily be resolved, it is relatively well off – hence the emphasis is on the E, because the other two have been accomplished. In Mexico, however, the reality is that the G doesn’t exist. He believes the culture is not there and there needs to be a radical transformation in corporations in Mexico in order to have true governance. In his opinion, this starts with the CEO and majority shareholder relinquishing power – without that G will never be strong.
The role of the GC when it comes to sustainable practice and strategy
After plenary remarks by Mariana Herrero, partner at Galicia Abogados S.C., the event continued with the second panel discussion which was moderated by Carlos Escoto, partner at Galicia Abogados, and explored the role of GCs when it comes to sustainable practice and strategy.
Escoto started off the discussion by emphasizing that GCs and legal departments are instrumental at implementing sustainability programmes. He explained ESG at its core is a methodology to assess, report and improve the performance of a company, and a prerequisite is the governance of company. According to Escoto, if there is no good corporate governance, there is no way of measuring the E and S impact; if nobody takes ownership of accountability, nothing will get done; and if a company doesn’t fulfill its commitments, it is in trouble. He elaborated that GCs are therefore crucial for grounding ESG corporate strategy, as they need to advise the C-suit and steer the company through the tricky waters of compliance and avoid greenwashing.
Carolina Núñez, head of legal at Solar at BayWa r.e. Americas, instantly agreed that the role of the GC lies not just in the implementation of ESG strategy but to be part of the board, the executive team, the C-suite right from the start. They are the ones who know the applicable laws and background of the company, and therefore need to be involved from beginning in the definition and strategic thinking around the goals of the programme.
Luis Miguel Briola, General Counsel, Secretary and Chief Compliance Officer at Grupo Bimbo, agreed that it’s a huge responsibility on leaders to see ESG executed in day-to-day business. He also pointed out that ESG is a very good business and recounted that since the foundation of his company, social responsibility has been in the DNA of business plans – for more than 80 years. He stressed the importance of having a clear purpose of what you want to achieve.
Briola then described how in the case of Grupo Bimbo, ESG is embedded in the purpose and strategy of the company, which has been branded “to nourish a better world”. “Better for you” looks at the nutritional aspects of the products for a higher standard of quality for consumers; here he emphasized the importance of understanding the evolving needs of consumers to achieve long-term sustainability. “Better for life” describes the company’s plans to positively impact the communities that they affect in all establishments across the world. Lastly, “Better for the planet” sets clear measurements and targets regarding energy, water usage and CO2 emissions. This is an example of a holistic view of ESG, working together with the rest of management to set the right strategies and right conduct in day-to-day operations in order to maintain a company for many years to come.
Eugenio Bernal, General Counsel and Secretary of the Board at BBVA, stated that GCs are experts of the legal aspects of corporate governance. They know the rule of law, need to take care of guarding companies when it comes to corporate disclosure, but also need to contribute to the creation of value. In other words, they need to not just be on the defense, but take on an enabling part of their role by helping to clear the runway for the company to move forward.
Kurt Vogt, Sustainable Finance Advisor and CEO at HPL, LLC, added his perspective as non-lawyer on the panel. He left Citibank ten years ago, when he decided to study a Masters in Sustainability Management, and consequently started his new company HPL, giving advice on sustainable finance. His new company’s mission was to accelerate the flow of capital to sustainable companies. In his opinion attracting capital with sustainability in mind is an exercise of a change in mass behaviour, and GCs are the most important player in this. He works a lot with development banks, who in his opinion are the perfect teachers in sustainability. He has also worked with the Government of Chile, by far the biggest issuer of ESG bonds in Latin America, structuring their sustainable bond framework. Furthermore, his company was hired by Latinex, the stock exchange in Panama – which wants to position itself as green finance hub in the region –, to write a public guidance document on how to integrate and disclose ESG.
Briola underscored that a main challenge has been in how to evolve a line of thought which maybe was inconsistent to having a holistic and general approach on ESG. He admitted that it has been a learning experience, both learning from mistakes and from other companies and NGOs. He stressed the importance of sitting down with top management to discuss new realities and expectations – not just of consumers but all stakeholders in order to be ahead of the curve. This is especially true since legislation is lagging behind.
Núñez, who works for a renewable energy company, pointed out that renewable companies are not sustainable just because the product they are selling is renewable. In fact, they may even be subject to higher scrutiny which in her opinion is fair and should be the case. Since 2018, BayWa has been using renewable energy in all its offices, and the company is trying to compensate for its carbon footprint because it is not able to completely eliminate it. Most importantly, Núñez spoke of the sustainability check list the company needs to implement in every single project to make sure the project is respectful of the environment and community as well as the supply chain. The company’s projects are mostly in rural communities where they are very disruptive, so there is a need to go beyond just being in compliance with all environmental laws. She revealed the supply chain is a real concern, for example, when it comes to finding solar panels where they can prove sustainability in all aspects (no forced labor in the production of the panels, and so).
Briola added that up to now there is no regulation with regards to greenwashing. The reputational risk is evidently huge with an immediate impact on business, so it is important to be as compliant as possible. He again pointed to the important role NGOs have to play – not just as incentive to comply but also in terms of a good dialogue between NGOs and companies. In his opinion, NGOs are the experts and can give companies awareness of issues. He believes there will be more activism from NGOs and more legal actions brought by NGOs in Latin America.
Núñez emphasized the creation of value, trying to develop measures that combine the respect of communities with the creation of value for the company. As an example, she recounted how her company discovered that by allowing the grazing of animals within photovoltaic plants it is able to save money: 80% of mowing cost and tax benefits. With the dual use of renewable energy projects, they are creating value.
In some final remarks by the panel, Bernal stressed that step zero is to be prepared, to have a plan which is coherent and you can sell to investors. It needs to be easy to explain and understand, it needs to have milestones and ambitious KPIs but achievable ones. Step two is to shop around, find out what type of investors there are and dig into their ESG stories to find the best fit. This step also includes finding the people within the organisation who are leading on ESG. Last but not least, in his opinion, it is better to underpromise than overdeliver – then the next round of financing will be much easier.
The closing remarks were delivered by Manuel Galicia, managing partner at Galicia Abogados S.C., who stressed the need to keep educating ourselves. He emphasized that ESG is here to stay, there is lot to be done, and there’s a lot lawyers can contribute to this. Some years ago, Galicia started an ESG practice for their clients but also looked inward to walk the talk. He considers ESG a good business and a good opportunity which can help to attract talent, to gain a good reputation and a competitive advantage. He also acknowledged that sometimes years go by and seemingly nothing has changed, but we need to be patient and keep working hard – there’s a lot to learn. As a next step, he suggested we need to invite the younger generation to hear their thoughts.
The event concluded with a brief live survey where the audience shared their thoughts about ESG and sustainability within their companies. Everyone was then invited to stay on and mingle over drinks and canapés, giving participants and speakers a chance to network and continue the conversation.