Decarbonization is Essential to Efficiency, Competitiveness

Q: Starting in 2026, Mexican companies will be required to include sustainability reporting within their annual financial reports under NIS A-1 and NIS B-1 guidelines, issued by the Mexican Financial Reporting Standards Council (CINIF). How will these guidelines change the way companies report on environmental and social performance?

A: Traditionally, companies have relied on standards that have evolved over many years, such as the Global Reporting Initiative (GRI), which provides established and validated metrics and indicators used by many companies worldwide. As a result, businesses are more accustomed to voluntary reporting than to regulated reporting. The shift to international sustainability standards promoted by CINIF is significant. These standards now require companies to make information on risks and opportunities related to sustainability — covering environmental, social and governance (ESG) issues — available to investors.

These guidelines also specifically address climate change. Within sustainability reporting, there is a wide range of possible environmental indicators, which makes the process complex, but also valuable. For investors, this goes beyond return on investment; it helps them decide where to allocate resources strategically to minimize environmental impact while also protecting their portfolios against potential environmental risks.

Q: How do global standards differ from those issued by CINIF?

A: CINIF promotes 30 sustainability indicators, many of them quantifiable, allowing companies to report both absolute and relative information. Over half of these indicators are environmental, and they give companies a structured and comparable way to disclose data, provided those companies follow the national accounting standards issued by CINIF.

In contrast, companies aligned with international financial reporting standards are subject to standards issued by the International Sustainability Standards Board (ISSB), particularly the International Financial Reporting Standards (IFRS) S1 and S2, which focus on risks and opportunities related to sustainability and climate change.

Although the goal is convergence between national and international standards, they remain on different tracks for now. For example, the Mexican standards go beyond basic emissions inventories and include issues such as the national green taxonomy, material and waste flow analysis, and biodiversity. These areas are not yet fully addressed in the international frameworks.

Q: How does South Pole help companies navigate these complex frameworks?

A: South Pole was founded in Switzerland in 2006. In Latin America, we have nearly 16 years of experience working with corporations. During this time, we have had the opportunity to work with many of the largest companies operating in the region, from Mexico’s northern border to Patagonia. These include companies across all sectors that drive both the Latin American and Mexican economies.

Our work has covered fundamental efforts such as developing complete greenhouse gas emissions inventories, as well as more advanced initiatives like designing circularity strategies for global companies. We also support biodiversity impact and dependency assessments, aligned with the Taskforce on Nature-related Disclosures (TNFD). Finally, we specialize in identifying and addressing gaps where companies either lack knowledge or need strategic frameworks to act.

Q: Beyond compliance, what common mistakes or blind spots do Mexican companies often make as they start implementing these reporting standards?

A: It may seem counterintuitive, but one of the main challenges is basic: having reliable fundamental information to carry out analyses. Even though AI and data consolidation are now common, companies still face difficulties in managing large databases. The first challenge is to consolidate the information and ensure proper internal verification processes so the data is collected consistently year after year. This consistency is essential for sustainability impact assessments to be comparable with historical estimates.

A second challenge is building internal capacities. There are so many international and local frameworks, initiatives, and standards being developed that it becomes confusing for companies. Capacity building is therefore fundamental. Our approach is not just to repeat the same mechanical calculations for the companies we work with, but to help them strengthen their own internal skills. This allows us to support them with more strategic issues and innovation.

Q: CINIF and ISSB standards require tracking and disclosure, but not actual decarbonization. What real business incentives exist for companies to go beyond reporting and actively reduce emissions?

A: First, sustainability is almost synonymous with efficiency and resource optimization. This means fewer defects, less waste, more efficient use of resources, and savings. Most sustainability projects can deliver internal rates of return above 10%–15%. This is proof that sustainability is no longer a symbolic “decorative” function within companies, but a core driver of profitability.

Companies are finding that their internal teams can both generate savings and strengthen market positioning. Sustainability initiatives not only reduce costs but also provide a license to operate, allowing companies to maintain or expand their market presence, launch products with lower impacts, and innovate. Moreover, when companies work collectively on decarbonization initiatives, they can mobilize capital for initiatives that would be difficult to undertake individually and shorten innovation cycles.

Q: How will the Carbon Border Adjustment Mechanism (CBAM) impact Mexican companies, even those not exporting directly to the European Union?

A: CBAM is designed to prevent unfair competition between the European Union, which requires strict decarbonization, and imports from jurisdictions with weaker environmental regulations. CBAM is also closely linked to the European Emissions Trading System (ETS). Certain industries in the European Union still receive free emissions allowances, but these will eventually be phased out. Companies will then need to purchase permits through auctions, creating a de facto carbon tax. To ensure fairness, imports of products such as steel, cement, fertilizers, electricity, and green hydrogen will also face a carbon price, either at the border or in their country of origin.

If Mexico does not coordinate its federal and state-level carbon pricing systems, it could face disadvantages when exporting to the European Union, as products may become more expensive due to additional carbon costs. The greater risk lies in the possibility that CBAM could later extend to more complex products, such as auto parts, which would significantly affect Mexican industry.

A similar effect can be seen in North America with nearshoring and increasing trade integration. Even though sustainability requirements in the United States are less advanced than in the European Union, expectations for emissions reductions are rising. Mexican exporters will face growing pressure to align with US and Canadian standards. And while there may be a temporary pause in policy urgency due to the Trump administration’s sustainability priorities, this does not mean Mexican companies should relax. Instead, it is an opportunity to accelerate decarbonization. By doing so, they can avoid sudden, costly investments in the future if similar mechanisms are introduced in the United States or by other major trade partners.

Q: How is South Pole preparing clients for the challenges and opportunities brought on by strengthening international sustainability standards? 

A: We aim to keep our service offerings as up to date as possible for clients. For example, less than a year ago we launched an online emissions accounting platform called Luumo. With tools like this, we help companies measure their climate impact more accurately and in a traceable way. They can monitor their emissions, establish decarbonization pathways, and identify key interventions to reduce emissions, rather than waiting for regulation to force action.

Companies that begin their net-zero strategies early already have lower emissions intensity embedded in their products. This positions them more competitively in the face of regulated schemes such as CBAM and other potential border adjustment mechanisms in the future.

Q: How will Mexico’s Emissions Trading System (ETS), still in its pilot phase, differ from those in the European Union and North America? 

A: An ETS provides significant certainty compared with other ways a government can implement decarbonization policies. One option is a carbon tax, which clearly establishes the price of emissions, such as CO₂. However, it does not provide certainty about how much emissions will be reduced in the future. An ETS sets a maximum emissions cap, which is allocated among participants, sectors, or obligated entities. Allocation can be free or through auctions, with a defined price.

For example, the EU ETS started nearly 20 years ago with free allocations, then moved toward auctions as additional mechanisms were implemented. In Mexico, a two-year pilot phase was expected, followed by a one-year transition, aiming for full operational implementation from 2023. There is uncertainty about the operational phase and timing, but participating companies are better prepared. They understand the mechanisms and the percentages required to comply through emission reduction projects or avoided emissions, which are converted into certificates to meet annual targets.

Mexico has multiple carbon instruments, including carbon taxes and ETSs at both federal and state levels. Aligning state and federal signals is essential to provide legal certainty and avoid carbon leakage, which occurs when companies move operations to jurisdictions with lower carbon costs. Clear communication and consolidation are required to ensure that resources recovered through these instruments are used for national decarbonization. Once fully operational, the ETS will strongly affect cost structures, competitiveness, and investment decisions, particularly for industries exceeding 100,000 t of CO2 emissions, such as energy and manufacturing. Companies that act proactively can reduce financial exposure under carbon regulations while planning strategic decarbonization, ensuring compliance and maintaining competitiveness in domestic and international markets.

Q: What strategies or innovations are leading Mexican companies adopting to close the gap, and what role is South Pole playing in that process?

A: One fundamental factor is the industry in which a company operates. For example, in sectors like services, the main instruments used typically involve decarbonizing their energy matrix. This can be done through power purchase agreements linked to green attributes, strategies to reduce energy consumption within their own service providers, or through the purchase of renewable energy certificates. 

Other industries, such as agriculture, are much more complex to decarbonize but also more interesting. In agriculture, there are various interventions along the value chain, such as sustainable agricultural practices. Many interventions can be implemented on-site to prevent deforestation linked to the production of vital inputs. At the project or watershed level, actions can both reduce emissions and increase carbon capture, as well as address issues like water stress in the basin. These interventions are also linked to the company’s license to operate.

Ultimately, the decarbonization strategy is highly industry-specific. Another factor is where the company’s headquarters are located. Many large companies in Mexico have headquarters abroad, and often their decarbonization strategies are driven by mandates from outside the country. In these cases, we help companies with headquarters in Mexico understand the national context, while also acting as translators to communicate international mandates into implementable actions at the national level.

Q: What sectors in Mexico are moving fastest on decarbonization, and which are lagging behind?

A: More than the sector, it depends on the company. For example, large cement companies have been making significant progress for many years. On the other hand, in the last ten years we have seen significant growth in companies within the food and beverage industry. They are seeking, for example, to reduce food waste as much as possible. This is particularly important because roughly one-third of global emissions are linked to food production.

Q: How does South Pole specifically help companies implement circular economy practices, supply chain greenproofing, or advanced waste management? 

A: South Pole has been working with companies on circular economy issues for at least the past five years, building extensive experience across multiple areas. The focus is on plastic packaging, but the firm has structured its approach around five key stages in the circular economy journey.

The first stage is mapping material flows within the organization. Understanding where materials come from, where they end up, and how much escapes into the environment is fundamental, especially for materials of concern such as plastics. The second stage involves identifying risks and opportunities linked to the company’s business model and material usage. This includes regulatory considerations in different countries and potential litigation risks, particularly related to greenwashing. The third stage is establishing a circularity strategy. Companies evaluate existing sectoral or national interventions and use them to create a coherent plan aligned with their overall circularity goals. The fourth stage focuses on external projects and collaborations. Once internal measures to reduce waste — especially to landfills or natural leakage — are exhausted, companies explore initiatives outside their value chain to compensate or mitigate residual impacts. The fifth and final stage is communication. Companies must report transparently on their actions, aligning with rigorous voluntary reporting frameworks and local regulations.

South Pole has implemented two types of interventions that illustrate this approach. The first involves evaluating packaging comprehensively, beyond carbon footprint or climate impact alone. This assessment considers trade-offs, such as a material that reduces landfill waste but increases carbon emissions, ensuring decisions optimize overall environmental outcomes rather than a single metric. The second intervention focuses on mapping suppliers, particularly for plastic packaging. Companies analyze where their products are produced and in which markets they are used, assessing local waste treatment systems and the potential for materials to enter the environment. Based on this mapping, South Pole helps identify additional projects to mitigate impacts from residual plastics, ensuring companies manage environmental risks more effectively.

Q: How does South Pole ensure the integrity of its carbon offset projects and avoid reputational risk for its clients?

A: The carbon market, particularly the voluntary market, has evolved significantly over the past three to five years. This evolution has been driven in part by technological advances and increased rigor in standards and methodologies. Within this context, South Pole has focused extensively on quality and integrity across multiple levels. The first involves partnering with standards that have improved integrity and quality in their own control processes and methodological development. The second includes an additional layer of oversight, involving a rigorous technical assessment of projects before implementation.

Our processes of quality control are multidimensional. They include reviewing negative media coverage related to the project or its methodology, conducting internal assessments of social and environmental impacts at the project site, and performing due diligence (KYC) on project partners. South Pole also engages an independent team to validate identified risks, supports ongoing project monitoring, and develops indicators to track project performance throughout its lifecycle. 

Upon completion, all of these steps are summarized in an integrity report provided to clients once collaboration is confirmed. This report ensures transparency, acknowledging the reality that no project is perfect. While projects generate positive impacts, there are also inherent risks, as with any development initiative. As such, this approach allows potential project participants and certificate buyers to understand both the benefits and risks, reinforcing transparency and accountability in voluntary carbon projects.

Q: COP30 will see Mexico present its Nationally Determined Contributions (NDCs) 3.0. How will this and other developments impact Mexican companies heading into 2026?

A: Much is at stake at COP30. An innovative financing instrument for countries with tropical forests, of which there are over 70 globally, will be launched. Brazil is also expected to publish the rules of its own ETS.

In Mexico, several key issues will be important to monitor. First, the evolution of the third edition of the NDCs will be critical. The first NDCs were issued following the ratification of the Paris Agreement in 2015–2016. The second edition was submitted by nearly 200 countries around 2020, and this process must continue every five years with increasing rigor.

COP28 included a global inventory exercise known as the “Global Stocktake,” which indicated a projected global temperature increase of between 2.1°C and over 2.8°C, depending on underlying assumptions. This remains well above the Paris Agreement target of 2°C, or the more ambitious 1.5°C goal. Companies will need to monitor which standards and methodologies are approved, especially since the last COP established general mechanisms to operationalize Article 6.4, a UN-regulated global mechanism. COP30 will discuss operational details of Article 6.4 in greater depth, including which methodologies will be eligible for emissions trading. It is also expected to clarify Mexico’s position regarding approval letters required to export avoided, reduced, or removed emissions as tradable certificates under Article 6.2 of the Paris Agreement.

Q: Beyond compliance, what trends will shape the Mexican corporate sustainability landscape over the next three to five years?

A: First, there will be greater certainty regarding regulated carbon markets, as clear global rules for regulated exchanges are being established, which is a significant development. Second, the line between regulated and voluntary markets is increasingly blurring, moving toward unification in certain respects. Certain sectors face higher costs to reduce emissions. These sectors represent key opportunities for innovation and could attract investment from developed countries into developing countries. 

Another important aspect is mechanisms like the Tropical Forest Forever Facility (TFFF), which could generate financing for countries that commit to keeping deforestation at low, near-zero levels. Monitoring mechanisms will be essential to ensure these countries are meeting their emission reduction commitments. Overall, the convergence of regulated markets, voluntary markets, and innovation will be fundamental trends to watch in the lead-up to 2030.

Q: What is South Pole’s long-term vision for Mexico and Latin America in terms of corporate decarbonization and climate leadership?

A: South Pole focuses on supporting companies in two main areas. The first is corporate sustainability. Reporting alone is not enough and can even be demotivating. Fundamental changes in business models are necessary, and South Pole provides the information needed to guide decision making. Business leaders, managers, and employees know their organizations best, but South Pole helps them interpret results at the corporate level and make informed decisions that not only monitor investment performance but also identify strategies for long-term sustainability in their sector and market.

The second area is the development of high-integrity projects, helping organizations advance toward their net-zero goals. By 2030, emissions must be cut in half, and by 2050 — or earlier — sectors must achieve 80%–90% decarbonization. The remaining 10%–20% must come from carbon removals. Within this framework, South Pole will follow the Science-Based Targets Initiative (SBTi) Net Zero Standard 2.0 to guide companies on both decarbonization and intermediate carbon removal targets.

Q: What is your final message heading into COP30? 

A: When we were discussing the period after the Paris Agreement, the decade of 2020 to 2030 was supposed to be the “decade of action.” We are now at the end of 2025. There is little room left for political discussions that delay real action. True action and the transition to a sustainable economy require decoupling economic growth from climate impact. 

Nature and biodiversity are fundamental. Our dependence on ecosystems is extremely high. Many cities are already experiencing the strongest impacts of nature firsthand. In Mexico City, for example, we recently faced severe drought conditions quickly followed by flooding. Immediate action is necessary; there is no time to delay climate action any longer.

Everyone can contribute. It is not valid to say that as individuals we cannot make a difference because other countries — particularly China and the United States — are responsible for the largest share of the world’s 50+ gigatons of emissions. Every individual and every company has a critical role to play in combating climate change.

The message is clear: we must redouble our efforts, stay focused on action, and decarbonize as quickly as possible — through voluntary initiatives, regulatory frameworks, and, above all, through corporate and individual commitment.