Arturo Palacios
Deputy Director Mexico
The Carbon Trust
/
Expert Contributor

Why Sustainable Finance Is Key for Latam’s Green Recovery

By Arturo Palacios | Fri, 12/03/2021 - 11:24

The COVID pandemic has revealed the fragility of our society and economic system, as well as highlighted the importance of natural capital, which is the foundation of, and sustains, our economic system. At the Carbon Trust, we see increasing interest in and demand for the wide range of sustainability investments within Latin America and globally.

There are several reasons for this trend. Firstly, the intrinsic value of protecting biodiversity, air quality, water resources, ecosystem services, and nature-based solutions is increasingly being recognized. Tackling the COVID pandemic has increased awareness of the challenges in addressing global issues, and most importantly, that if we do not do anything to tackle climate change and biodiversity loss, we will be facing far greater problems than the pandemic.

Secondly, sustainable investments deliver economic benefits. This becomes particularly important in a post-COVID-19 world, where companies will need to be as resource-efficient as possible. For example, financing and implementing energy efficiency measures can provide an opportunity for job creation while also reducing the need for expensive energy, making it easier for the industry to recover from the COVID crisis. If delivered at scale, energy efficiency savings can also reduce the overall energy demand on the electricity grid, producing further savings. Additionally, the large-scale replacement of less efficient technology will also lead to increased business opportunities for supply chains.

Thirdly, there is increasing evidence that suggests that sustainability-focused investments outperform benchmark investments. Recent studies have found a positive relationship between Environmental, Social and Governance (ESG) investing and financial performance.

Lastly, we are seeing different sources of pressure for sustainability-related investments. For example, we are noticing how regulation, in our region and globally, is pushing us more and more toward more sustainable investment practices. Likewise, international climate commitments are driving governments and financial institutions to allocate more resources toward sustainable initiatives and assets, as recently seen in the different climate finance pledges announced during COP26 in Glasgow.

At the Carbon Trust, we are certain that sustainable finance is necessary to decarbonize the economy, as it will trigger technological transformations as well as investment in sustainable and climate-resilient infrastructure that, in addition to not losing its value over time, contributes to the provision of critical services regarding water, electricity and transportation in developing countries.

We believe the participation of the public and private sectors, through the issuance of thematic bonds (green, social, sustainability, sustainability-linked bonds, etc.) and the deployment of other green financial instruments, is essential to unlock and increase the investment necessary to achieve a decarbonized future. However, it is fundamental that these investments are based on solid technical environmental and social frameworks to avoid the risks of greenwashing, which is becoming a larger threat to the credibility of sustainable finance markets.

As we continue working on sustainable finance projects across Latin America, we see there is a rising interest in ESG and impact investment, which is resulting in more funding for projects that address climate change and poverty, which comes at a perfect time, because the needs are growing in Mexico and the region after the profound economic impacts from the COVID pandemic. The Carbon Trust, a pioneer in decarbonization, has the capacity and experience to ensure that those funds are invested in truly “green” projects. More than ever, our work is relevant to the green recovery.

We are a mission-driven organization and one of our aims is to generate awareness regarding the relevance of measuring, managing, and reducing environmental impacts. We are in a decade that will define our global response to the threat of climate change, and we must do our best to align to a net-zero pathway. It is, therefore, a crucial moment for corporates and governments to act for the planet, society and also for their own interests, as all sectors are facing relevant climate risks.

As a trusted expert guide, we want to support this important transition and help organizations to take the opportunities that come with it. By committing to sustainable investments, public and private entities can open the door for innovation, efficiency improvement, cost reductions, and evident reputational benefits as they will be able to be at the forefront of sustainable development by demonstrating they are taking their share of responsibility toward climate action.

The Carbon Trust will continue to support public and private sector organizations through the challenges that lay ahead. It is important that we take advantage of this momentum not only to stimulate economic recovery but to encourage true sustainable development. This can be done by deploying innovative sustainable finance practices, green stimulus packages, policies and programs that help to set net-zero pathways, as well as other tools that help to reduce the environmental impact of economic activity.

Finally, it is relevant to highlight that sustainable finance practices will continue growing at an accelerated pace during this decade and that it is up to us to ride the wave and contribute to achieve national climate, environmental and social targets, ensuring long-term and transformational impact.

Photo by:   Arturo Palacios