ESG: What Is Missing In Mexico and Latin America?
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ESG: What Is Missing In Mexico and Latin America?

Photo by:   Hugo Hernandez-Ojeda
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By Hugo Hernandez-Ojeda - Hogan Lovells
Partner

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In this article, I am not going to explain the meaning of the three letters — ESG — that has  companies reviewing policies, compliance, and practices almost everywhere; this has already been done by specialists who can provide much better definitions than me. What I am interested in leaving with you  is that today in Mexico and Latin America, we are late in coming to this matter.

A few weeks ago, I was talking to some colleagues about the importance of companies that make up the supply and value chain of large transnational organizations implementing and complying with ESG policies.  One of them told me that he was seeing issues of little importance for business and the service industry and that this was far from happening in the world and even more so in Mexico.

I hope that my friend is not affected by living in a reality that is alien to global trends; my opinion in this regard is that all, absolutely all companies that have to do with the supply or value chain of any company, national, international, public or private, will have to comply at some point with the "demands" of their customers or stop providing services or selling their products, affecting their own business. That is, not doing anything today in this area is simply shooting oneself in the foot.

A dear friend of mine from IPADE told me that his worst headache as CEO of an international company was complying with all the ESG standards, but the pain disappeared when he saw the results and the commitment of his staff in complying with and implementing those standards.

Today, the trend indicates that those who do not comply with ESG self-regulation will be out of the game and the main players will look for new service providers or suppliers that comply with the obligations that the companies' philosophy demands. And believe me, they really demand it.

Not only will the consequence be the loss of customers, but the reputation as a service provider and supplier will also be affected by the corresponding consequences in the business world, and changing that perception is frankly quite a challenge.

The reputational issue for companies is nowadays an essential point to consider as a good business reputation is worth more than any good product with a bad reputation.

Continuing along the line of compliance, lawyers usually say that it is much less expensive to prevent than to remedy; that is, it is and will always be much better to have a strategy of compliance with obligations imposed by law or by the best business practices, local or international, than to face the consequences of non-compliance that can even lead to long and costly litigation due to the lack of compliance with contractual obligations. Today, there are ongoing international litigations and arbitrations because of the simple non-compliance with ESG-related policies (I hope my colleague reads this article and finds it useful for reflection). These involve lawsuits and claims for hundreds of millions of dollars. 

Sounds like good business for lawyers, doesn't it? Well yes, it is. The fees for this type of litigation are in the millions; however, advising clients on the implementation and compliance of policies related to environment, social and corporate governance will always generate more work, more business, happier clients, and more help to the world in general. It is true that more will always be synonymous with  adding up and that is what this business world needs. It seems that its pendular movement is leading us, fortunately, to a better way of life and of taking care of the planet and its people, which is urgent.

This is not just, as I once heard, about reviewing the compliance of all activities/obligations of the companies and checking the boxes of the letter that corresponds to them and that's it. It is a real commitment of the company and its members to go beyond the simple compliance of obligations related to ESG and turn it into a philosophy of business and life. In Europe, it is already a real culture that the company and its people live.

Today, it is increasingly common for law firms to be asked to comply with a large number of policies to be able to provide services to our clients and even to be able to propose to a potential client the provision of legal services. Among other requirements, there is always the compliance and implementation of diversity and inclusion policies and increasingly, the compliance and implementation of ESG policies.

The ESG issue appears in the matters on which we are working and in any area of practice. As an example, in my case as a representative and adviser to  companies, my work, besides seeking strict adherence to compliance with current legislation, is to verify that the board of directors of my clients is aware of the existence and need to comply with ESG policies applicable to each company. Given that in Mexico the legislation is practically null, most of the time we have to adhere to international standards, which I think is a good thing for companies to achieve homogeneity in the matter within and outside the country.

Fortunately, there are people who are committed to the creation of a regulation in Mexico and I am sure we will soon see it being discussed and voted on in the Mexican Chamber of Deputies and Senate for the birth of a new, robust and solid ESG law. Normally, reality is always ahead of current legislation, but in ESG matters the reality is light years ahead, at least as far as Mexico and Latin America are concerned.

Surely we will be hearing much more about this topic that I am passionate about and about which I learn something new every day. I will gladly continue to share my experiences in this column and I hope that we can generate awareness and conviction to comply with these issues that in the end, only generate a social benefit for which the planet and its inhabitants will be grateful.

Photo by:   Hugo Hernandez-Ojeda

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