Going Green: Corporate Sustainability and Investment Prospects for Latin America

Speakers:

• Kate Brass, Ecomagination Program Manager for GE Energy and GE Oil and Gas
• Karla Canavan, Manager, Latin America, Bunge Emissions Group
• Jordan Schwartz, Lead Economist, Sustainable Development, Latin American and Caribbean Region, The World Bank
• Mary Sutter, Managing Editor, Latin Trade (moderator)

Summary

Americas Society/Council of the Americas held an October 1 panel discussion on trends in corporate sustainability, the uncertain regulatory environment, and how companies are “greening” to impact their bottom line. Discussion centered on creating markets, using resources in a sustainable way, and developing technology to combat climate change and improve quality of life.

The market and demand for green investment

Governments and regulators have grappled with how to measure sustainability and provide incentives for mitigating the effects of climate change. The hurdles to achieving the Kyoto protocol demonstrate the regulatory roadblocks that currently exist. Bunge’s Karla Canavan noted that the U.S carbon market has been stuck in a philosophical debate on climate change while Europeans make strides forward. She outlined the cap and trade system put in place by the European Trading Scheme, which allowed for the development of offset markets among countries that set goals for emissions reduction. These offset markets represent an important opportunity for emerging markets, including Latin American countries.

Beyond the carbon market, Canavan noted sustainability trends in Leadership in Energy & Environmental Design (or LEED) certification for buildings, Reducing Emissions from Deforestation and Forest Degradation (or REDD) projects in forestry, and a consumer push for water conservation and demand for carbon and water footprints of products. The last of these puts the burden on companies to analyze their products and supply chains to report on their water and carbon use. Many companies are responding.

Canavan cited Walmart as an example, given their focus on the value chain instead of buying offsets for carbon emissions. The company improved profits by requiring suppliers to green, and now arranges shelving based on the carbon footprint of certain products. However, GE’s Kate Brass emphasized that there is currently no protocol or standard measure for a company’s energy footprint, and this means a cost-intensive process with questionable value to the consumer.

The World Bank’s Jordan Schwartz agreed that consumer awareness will be a driving factor. He compared this issue to cigarette smoking, citing the need to create incentives for proper behavior and disincentives otherwise. A gas tax and toll roads, for example, would help capture the environmental impact of driving and ensure a change in behavior.

The importance of energy

Brass argued that having regulation in place will improve practices, although they’re already occurring in the name of energy security. She named a series of infrastructure solutions that use locally available fuel to reduce dependence on outside sources and cut costs on importing energy. Petrobras was able to convert high-performing gas turbines to run on sugarcane ethanol, which is available in abundance and has a lower carbon footprint than corn-based ethanol. Similarly, Brightner Energy in Manaus has converted 120 megawatts generated from heavy fuel oil to natural gas, which is locally available.

There is much debate over what “sustainability” means, but Brass says improvement in quality of life drives environmental and operational efficiency. She named four components of a sustainable society: health, clean-water access, waste management, and energy sustainability. Energy is the most critical resource, making the infrastructure necessary to transport and use the energy a critical aspect of sustainability. It’s also about recognizing that “these are your resources, and you get to choose how to use them,” said Brass.

Schwartz also underscored the importance of building a more sustainable energy matrix. He noted that demand for electricity generation in Latin America will double in the next 20 years, representing $430 billion in investment, and that electricity represents just 20 percent of the region’s emissions. That means that, assuming hydropower and natural gas maintain the same portion in the energy matrix, the region will more than double its emissions contributions for electricity. Considering Brass’s point of choosing how to use resources, there is a question of greening the energy matrix further instead of turning the oil part to coal. Developing a more sustainable infrastructure would cost tens or hundreds of billions of dollars, says Schwartz, but is cheaper in the long term once you consider the cost multipliers associated with keeping older technology.

During the question and answer session, panelists stressed the importance of involving local communities to ensure sustainability of the “greening” projects. They are the stakeholders for energy transition and the workforce for community agriculture projects, such as a family-based palm oil project on degraded land in Brazil described by Canavan.

Putting a price on environmental risk and defining benefits

There are some external resources available to finance renewable projects, including the Climate Investment Funds administered by the World Bank such as the Clean Technology Fund and Strategic Climate Fund. But Mexico is the only country in the Western Hemisphere to yet take advantage of these funds. Canavan stressed that the participation of the private sector in concert with other actors will be crucial in initiating a shift to clean technologies and cutting back on global pollution.

Regulation, though crucial, will not drive innovation in the short term. On the other hand, financial mechanisms represent important incentives for individuals and corporations. Brass noted that banks are increasingly building a price for carbon into their loans because of the risk associated with an uncertain regulatory environment and hidden costs. Canavan mentioned Santander’s move to fund renewables in Europe and agreed that, when sustainability requirements are built in at the level of financing, there is a huge impact on the development of projects. Sustainability then moves from the realm of corporate social responsibility to strategy and becomes a key component of a company’s efficiency.

Even if standards develop slowly, companies, consumers and governments now recognize that there is a cost to environmental sustainability and a risk to inaction. Schwartz named a number of Latin American challenges to sustainable growth, including the highest urbanization rate in the world (70 percent in Latin America vs. 40 percent in East Asia, the second-most urbanized region), commodity wealth, high rates of inequality in terms of access to land and services, and high levels of motorized transit. The region also falls short on infrastructure investment, which slows access to markets and undermines basic goods competitiveness.

Schwartz also stressed that ending climate change is not the only benefit on the table. Indeed, the need for livability is the largest factor in the fight against pollution. The city of Bogota offers the most famous example of municipalities embracing integrated mass transit for improved congestion. Others are following suit, including São Paulo and Curitiba in Brazil, and Mexico City and Guadalajara in Mexico. With an estimated 35,000 deaths from transit emissions per year in Latin America, the benefits to improving clear.