Sustainable Strategies and Post-Pandemic Recovery

Conversations about sustainability are common ground for any business, as an intelligent approach to managing business risks and opportunities in environmental, social and corporate governance (ESG) matters, which ultimately leads to greater company profitability. ESG initiatives are a way of presenting the actions and sustainable development goals of companies to their employees, shareholders, suppliers, consumers, communities and investors.

ESG initiatives are undoubtedly perceived as a tailor-made suit because each company must identify and properly assess its own risks and opportunities as well as how to address them.

For any industry, there are some common market trends that are shaping organizations’ responses to these issues. Transitioning to efficient, clean and safe energy systems is one of the cornerstones of any sustainability strategy. This involves not only the transition to renewable energies but also the implementation of measures focused on reducing energy consumption.

Switching to clean sources of energy, such as bioenergy, hydropower, solar, wind, geothermal and ocean energy, helps to address climate change by generating far lower green gas emissions than those generated when fossil fuels are burned to produce energy. Consider that the largest source of greenhouse gas emissions from human activities is burning fossil fuels for electricity, heat and transportation.

Reducing energy consumption includes measures aimed at replacing lighting with LED technology, modernizing the grid to optimize technology advancements, installing systems to control the level and intensity of light in specific spaces, renovating air conditioning systems for more efficient alternatives, creating a more sustainable construction site, improving fleet management in the logistics and using videoconferencing to reduce travel, among others.

Renewable energy and energy efficiency projects fall under the sustainable finance umbrella, opening the door to other incentives such as the access to financing mechanisms linked to environmental and social impact performance indicators. On green taxes, implementing these projects reduces the payment of local green taxes imposed by at least 10 states in Mexico and also impacts the calculations for the delivery of emissions credits allocated to companies participating in the Emissions Trading Scheme Pilot Program.

In the international arena, some countries have ambitious proposals consisting of achieving carbon neutrality by 2050. Understanding that not all countries will assume the same level of commitment to combat climate change, involves the possibility that in the future some countries will impose taxes or tariffs applicable to imported goods based on their carbon content. For example, the Green Deal in Europe considers a border adjustment mechanism for carbon emissions on imports of certain products, such as iron, steel, aluminum and fertilizers. This carbon tariff is expected to be in place by 2026. Transitioning to renewable energies will maintain its benefits and impacts over the long run.

Sustainable strategies should drive strong financial performance and mitigate risk if correctly implemented, so they are a key driver in the midst of a post-pandemic economic recovery. Organizations must ensure that industrial operations are in full compliance with the current legal framework, otherwise an action program must be established to return to compliance. In addition to renewable energy and energy efficiency projects, sustainable strategies can also focus on product design, the production process, product packaging and packing, and storage and distribution logistics. Be creative, evaluate alternatives to use more environmentally friendly raw materials, to manufacture lighter products, to design products and/or packaging that can be recycled, to recirculate raw materials, to minimize waste and wastewater discharges, among others.

In-house legal departments need to be involved and fully understand the sustainability strategies, as there could be important features to consider. Regulation is not limited to environmental impact. There is a global ramp-up of laws governing companies’ social corporate responsibility, supply chain management, human rights and equality policies. Taking sustainability strategies one step forward involves ensuring that legal documents contain ESG requirements, in particular employment requirements, supply contracts, procurement policies, financing arrangements and M&A documents.

Having a solid sustainability strategy will allow companies to shield themselves from third-party claims alleging a simulation of managing their business based on ESG criteria and using them only as a marketing or communication strategy. Have strong elements to support the claims in advertising, labeling and other forms of communication.

There are several reasons to take action now. With consumers, regulators, investors and employees viewing sustainability issues as business critical, failure to act can lead to a loss of demand, enterprise risk and a massive opportunity cost. Loss of talent, reputational damage and regulatory non-compliance are all risks if businesses fail to act in a timely manner. Conversely, companies that get this right and have strong sustainability strategies will attract and retain the best talent, have access to a larger pool of capital and build strong long-term partnerships with counterparties that share similar values and commitments.

In the end, sustainability is here to stay and companies that embrace the changes will be the ones that thrive in this new paradigm.