The Rise of ESG in Mexico's O&G Industry

Integrating ESG practices in Mexico's oil and gas industry is becoming increasingly essential as stakeholders demand more sustainable and responsible operations. However, the industry still faces challenges in effectively communicating its efforts. PEMEX serves as a key case study; although the company has placed sustainability at the core of its strategy, uncertainty regarding its budget and communication hinders the development of long-term projects and financing.

ESG standards are essential for minimizing environmental impact, enhancing social responsibility, and ensuring robust governance. By adopting these standards, companies can improve their operational efficiency, reduce risks, and foster positive community relations. Carlos de Regules, Former Director, ASEA, and CEO, Assist, highlights the significant evolution in oil regulation since 2014, when new investments exposed the country's regulatory gaps. He stressed that although ESG progress remains voluntary, pressure from institutions, investors and academics has driven considerable advancements. 

Luis Vera, Managing Partner, V&A Legal, explains that industry permits already incorporate social and environmental considerations. The issue, however, lies in communicating these efforts clearly, as key concepts are often misused. "ESG standards in the oil industry are significantly higher than in other sectors. Still, the industry needs greater alignment to clarify definitions. Many companies claim compliance, but they do not address how, what, or why." 

Javier de la Cruz, Business Development Manager FGDS, Dräger, agrees that there has been limited progress in communicating ESG efforts within the oil industry. "ESG strategies are being demanded not only because it is fashionable, but also because it is now required across all sectors. We have not started from scratch, yet there is criticism as we lack good communication channels and clearer ways to convey the message."

Lorenzo Meyer, Independent Board Member and President of the Sustainability Committee, PEMEX, emphasizes that the state-owned company has long prioritized ESG matters and their communication. "When it comes to ESG, most companies focus on the environmental aspect. However, for PEMEX, the social dimension is the most critical to ensuring long-term viability. We no longer see ESG as a trend—it is embedded in everything we do." 

Regules emphasizes that the cornerstone of ESG compliance is strong governance, as clear measures are essential to tackle a critical issue that can undermine all other areas: corruption. In addition, business processes should be designed to naturally incorporate a holistic view of social and environmental factors. “A business plan and an investment strategy are what guide the organization. By incorporating checkpoints to evaluate ESG risks throughout these processes, the product becomes inherently socially responsible, rather than attempting to achieve compliance only after the project is completed. I would recommend PEMEX to focus more on its governance area.”

Cruz states that implementing ESG standards presents different challenges and opportunities, particularly when comparing new projects to mature fields. New projects offer a blank slate for incorporating ESG principles from the outset, allowing for the integration of the latest technologies and practices. However, mature fields pose significant challenges due to existing infrastructure and established operational practices that may not align with modern requirements. 

Cruz also emphasizes the opportunities for leveraging technology and international best practices to support ESG transitions. Technologies such as carbon capture and storage (CCS), renewable energy integration, and advanced monitoring systems can play a crucial role in enhancing environmental performance. He stated that Dräger provides solutions that enhance safety during operational activities, particularly in scenarios such as temperature spikes and flow changes that could lead to spills and potential fires. "There is a broad array of technologies already implemented in various industries that we can further leverage in the oil and gas sector to enhance control and optimize operations."

Meyer explains that while PEMEX aims to incorporate new technologies, it faces budget constraints that other companies and state entities do not. "Without clarity on our resources for the coming year, developing sustainable long-term plans becomes difficult. We need a better understanding of our budget and agreements, but since these depend on the deputies and the Ministry of Finance, executing multi-year projects is quite complicated.”

Experts highlight that PEMEX's ESG performance directly affects its ability to secure funding and partnerships with international entities. Investors and partners are increasingly prioritizing ESG compliance when making decisions, and PEMEX's adherence to these standards can enhance its attractiveness as a partner. Conversely, any shortcomings in ESG performance can deter potential investors and collaborators, impacting the company's growth and the broader industry's perception. They also underscore the broader implications of ESG integration for Mexico's oil and gas industry. Companies that proactively adopt ESG standards are likely to gain a competitive edge, attracting investment and fostering long-term sustainability. On the other hand, those that lag in ESG compliance may face financial and reputational risks.

Regules expresses hope that the country’s energy policy evolves from merely being an end goal to becoming a means for national development, attracting investments, and strengthening industry. "It is not just about achieving energy sovereignty; it is about our approach and the objectives we aim to accomplish."