Connecting Sustainable Finance Between Mexico and Latam

From Nov. 30 to Dec. 1, the Climate Bonds Initiative together with the Bank of Mexico and the Mexican Council for Sustainable Finance (CMFS, formerly the CCFV), held the Regional Conference on Sustainable Finance in Mexico City. For this event, the three institutions worked to connect sustainable finance in Mexico and the Latin American region. This provided an opportunity for discussion among the most relevant stakeholders and to understand the lessons learned so far. A spotlight was put  on the opportunities and the challenges facing Latin America and the Caribbean in terms of sustainability and the fundamental role of green instruments in this context. This article aims to highlight the reflections of the speakers on the different panels for the Latin American context and to emphasize the immense potential of the region to support climate change mitigation, adaptation, and the transition toward low-carbon economies. 

It is relevant to highlight that sustainability is here to stay. It is no longer relevant to ask whether to include sustainability elements into corporate strategies or not. The question should be directed at how and with what speed they should be included. As Juan Carlos Belausteguigoitia, president of the TCFD Mexico Consortium, said, organizations must decide whether to carry out a transformation in an orderly and low-cost manner or at the wrong time and forced by regulation. This responds to the imminence of climate change-related threats and the responsibility of markets to generate effective transitions toward low-carbon economies that mitigate the effects of climate change. 

As part of the findings of the latest Intergovernmental Panel on Climate Change (IPCC) report, mentioned by IPCC Vice President Thelma Krug, the importance of shifting the focus of industrial development policies toward the objective of reducing greenhouse gas emissions is highlighted. This is achieved through strong cross-cutting and organizational leadership, further development of technologies that support the reduction and decarbonization of the atmosphere, strong demand for low-carbon materials and products, greater international coordination of climate and trade policies, and increased capacity for governance and learning. These are precise points that the most advanced organizations are already working on. We do not need to discover a method to generate a transition toward net-zero emission economies; we already know how this can be achieved. What is needed is a cohesive and coordinated set of actions taken by all market stakeholders to achieve this. 

The Latin America and the Caribbean is a region rich in natural resources, which enhances its high potential to support this transition. For the energy sector, for example, Latin America has opportunities in all countries and sectors. As mentioned by Camila Ramos, Clean Energy's director for the region, we have bodies of water that function as natural batteries as well as enormous potential for the development of solar and wind energy and new markets, such as hydrogen and green fertilizers. This makes the region relevant as well as competitive amid an ever-changing economic landscape. 

Economic transition cannot be solely based on environmental aspects but must also be characterized by an enclosed sustainability component. This implies the inclusion of social and governance elements. Issues such as gender equity and overcoming poverty have become fundamental and critical for the achievement of low-carbon economic models. In this sense, capital flows should be directed toward projects and assets that meet the environmental objectives of organizations and countries. Furthermore, investors are now requiring scores and labels that certify the best practices that organizations are complying with. Part of what the Mexican National Taxonomy proposes is to include these social aspects as part of its criteria, to make viable an economic model for sustainable projects that fits the needs of society, while reducing greenhouse gas emissions in all sectors. 

Although in the region there are imminent challenges associated with market governance,  it is necessary to create incentives for the mobilization of resources toward instruments labeled as green or social. This incorporates building capacities for a sustainable use of resources and the need to create a new model of economic development.

However, it is not only the private sector that matters: political impetus can also drive change. The financial regulators can set the stepping stones and lead the way toward financial sustainability. Bank of Mexico Gov. Victoria Rodríguez Ceja, in her keynote speech, reflected on the importance of central banks to consider climate change and their involvement to understand risks and opportunities related to temperature increase and biodiversity loss, as these are some of the concerns that have immense implications for economies, societies, and financial systems. 

Most important of all, this conference highlighted the importance of working together and setting compromises to mobilize resources toward a just transition, especially in emerging economies. In Mexico and in the region, it marked a turning point for new and improved strategies, connections, ideas, and new projects to work together with different actors,  all with the same objectives.