Due to the escalating climate crises, there has been a significant global rise in the development of clean and renewable energy projects that seek to reduce carbon dioxide emissions and boost the transition to more efficient technologies; Mexico, among other countries, is actively taking part in this process.
The growing demand for clean and renewable energy has encouraged that many important industrial and commercial off-takers in Mexico have established ambitious environmental, social and governance (ESG) and net zero emission goals. Also, investors and developers of clean energy projects are implementing creative strategies to meet such demand, while they support sustainable and inclusive business strategies that strive for a better future for generations to come. A well-timed integration of ESG practices in the investment and development of renewable projects has made the difference between achieving success and facing obstacles due to social resistance.
Growing demand for measurable benefits
To understand the reasons that have boosted the global shift to renewable energies, it is necessary first to explain the importance that environmental, social, and corporate governance issues have acquired for all stakeholders. Investors are increasingly focusing on the impact that companies have on the environment, their stakeholders, and society in general. As an example, a group of institutional investors from around the world were gathered in 2005 by the Secretary General of the UN to incorporate a process to develop the Principles for Responsible Investment (PRI). These were developed by and for investors and focus on the increasing relevance of ESG issues that must be met in every investment practice around the world.
Also, communities and local governments where companies are doing business are demanding the development of responsible and sustainable projects with real and measurable benefits for their communities. In fact, ESG and sustainability practices have a positive impact not only on the company’s resiliency, sustainability and engagement with the community, but also on the region, the environment and the economy.
In summary, there has been a considerable progress in the efforts of investors and developers to implement ambitious and coherent environmental, social and corporate governance policies. Their projects are driven by an increased consciousness and the belief that a successful business is the one that brings real benefits to its communities, the environment and all internal and external stakeholders. In this way, companies carry out sustainable actions not only to strictly abide to the applicable legal provisions, but also to generate a real benefit for the communities and society.
Framework and application in Mexico
For a country like Mexico, offering incredible natural resources, such as solar radiation, wind, and water streams, an integral and timely planned ESG strategy represents a great opportunity for the green energy sector. Though, a clean or renewable project does not necessarily involve a positive impact on the communities and the environment, therefore a well thought and accurate execution of best ESG practices will make the difference in its successful funding and development.
In Mexico, there are several authorisations and permits required by the legal framework for the development of a clean energy project. Two of the most relevant authorisations are the Environmental Impact Assessment (EIA) and the Social Impact Assessment (SIA) – both are mandatory for the development of any medium or big scale energy project. However, in order to be successful, companies should not only comply with the requirements necessary to obtain such environmental and social authorisations: they also have to include a reasoned, inclusive and comprehensive social approach, as well as an environmental assessment that ensures the protection of the environment where the project will be developed.
Furthermore, it is vital for investors, lenders and sponsors of renewable projects to timely and adequately review that the social and environmental strategies of their projects translate in real and tangible benefits to the communities and environment where they are being implemented.
There are some clean energy projects that have obtained the required permits and authorisations – including the EIA and SIA – and have still faced obstacles and resistance by local communities and authorities for their development, and some have even totally failed to prevail.
For example, a wind project that was being developed in a northern state of Mexico obtained its SIA in full compliance with the legal framework, and provided that during the construction stage of the wind farm, local community workers would be hired for the installation of wind turbines.
At a first glance, this is a good strategy for the local community and complies with the terms of the SIA. However, the wind turbines were going to be installed 10 kilometres up the mountains surrounding the local communities, and no transportation would be provided by the developer for the local workers to get to the construction site. Hence, opposition and obstacles to the project arose due to an inadequate social inclusion strategy, even though the developer had complied with the legal requirement for the obtainment of its permits and SIA.
ESG business perspectives
The assessment of renewable projects is also being considered by many off-takers that are looking to achieve their clean energy transmission goals. Relevant off-takers are not only looking for green energy projects to meet their energy supply needs, but are looking for the ones that were developed with a coherent ESG business perspective. By doing so, investors, developers and off-takers will all guarantee compliance with legislation, promote effective sustainable, social and environmental practices and acquire an unrivalled reputation in the clean energy market.
The promotion of ESG-efficient practices in the development of renewable energy projects in Mexico will continue to play a crucial role for investors, sponsors, developers and all stakeholders involved, since effective and measurable ESG goals are an important part for the success of a renewable project.
Von Wobeser & Sierra
T: +52 55 5258 1048
Edmond Grieger is a partner at Von Wobeser & Sierra. He is the leader of the firm’s energy and natural resources and environmental practices. In addition, he is part of the ESG practice group and coordinator of the energy and natural resources industry practice group. He is also a member of the firm’s German desk.
Edmond has more than fifteen years of experience in energy and environmental law matters, where he has advised some of the most important international companies, including several Fortune 500. He has broad experience in infrastructure project development, especially in the energy and natural resources sector; in public tender and auction processes; and in the negotiation of contracts related to the energy industry, such as power purchase agreements; engineering, procurement and construction (EPC) agreements; operation and maintenance (O&M) agreements, and project finance and development, especially clean energy, including combined cycle and efficient cogeneration.
Edmond is a graduate of Anahuac University, and completed a LLM in environmental and energy law from the Johannes Gutenberg University of Mainz. He is actively involved in pro bono activities, advising and collaborating with environmental organisations such as The Nature Conservancy, the World Wildlife Fund (WWF), Pronatura, the Consejo Consultivo del Agua and Amigos de Sian Ka’an.
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