Inflection Point

Written by Enrique Lendo, Business Development Mexico Advisor.

The World Environment Day sets a landmark for the international community. On June  5 of 1972, the Stockholm Conference on the Human Environment triggered a process that has produced over 500 international environmental cooperation instruments to date. Mexico has subscribed about a 100 of these agreements, strengthening our environmental management capacity and positioning our country as a player committed with global challenges.

Currently, most of the countries around the world have enacted environmental laws and established institutions for their implementation. However, they have not been capable to halt global environmental degradation. Greenhouse gas emissions have doubled since the adoption of the United Nations Framework Convention on Climate Change in 1992.  We have also lost 80% of wildlife species biomass and half of the natural ecosystem’s original areas due to massive deforestation, urbanization and pollution. Over one million species around the world are in danger of extinction.

But in the last years, the methodologies to monetize climate change impacts and the contribution of natural capital to the economy have also been improved. For instance, we know that services provided by biodiversity to productive systems are worth at least 1.5 times the value of global GDP. We also know that natural disasters cost over $100 billion dollars a year in damages and that the cost of climate change inaction could reach over 15% of global GDP by 2050.

Therefore, capital markets around the world are currently tuning their risk models to account for environmental and climate change impact of investment projects. On one the hand, physical infrastructure is more vulnerable to hydrometeorological impacts, on the other, the new generations of consumers and investors demand responsibly produced goods and services. Mexico´s Central Bank (Banco de México) and the UN have recently released the “Climate and Environmental Risks and Opportunities in Mexico’s Financial System, setting this sector in a path that will reward sustainability and punish pollution through risk assessment.

The post-covid19 crisis provides a point of inflection in which governments and companies are able to choose between updating their strategies towards sustainability patterns or perpetuate inefficient and shortsighted growth models. In the last weeks, countries, regional blocks, and subnational governments around the world have announced green recovery strategies. The European Union just released its € 750 billion economic recovery package to finance low carbon infrastructure. In the US, Democrats are positioning a “Green Deal” in the face of the upcoming national elections, while South Korea and Indonesia already implement green recovery plans.

In contrast, sustainability has been absent in the language of decision-makers in the Latin American region despite its potential to scaleup investment, create jobs, and foster welfare in the long term. A recent UN report concluded that the transition towards renewable energy and transport electrification in the region could create 35 million jobs by 2050. In Mexico, millions of people living in rural areas could benefit from investment packages to foster sustainable practices in the agriculture and forest sectors. But in order to harness these opportunities, governments need to start designing their economic recovery strategies with a comprehensive and long term perspective. Never in history had we been presented with such an attractive and feasible chance to redefine our development model.

** Article originally published in Reforma news paper:

David Poveda