economy and politics

Mexican nearshoring must be green or it will not be

Mexican nearshoring must be green or it will not be

ESG (environmental, social and governance) criteria, explains Ruth Guevara, climate change and sustainability leader for EY Latin America, are necessary to put the risks posed by climate change at the center of corporate decisions. And, although more and more companies are aware of them and there are transitional risks (such as new international or local regulations) that few companies have in their hands to make an executive plan towards sustainability.

“At the Latin American level, 58% of companies already have sustainability strategies, but without all the components derived from the new regulations,” says the specialist. In Mexico, a recent regulation will come into force in 2025 and will force public companies to include ESG information in their reports on a mandatory basis. Which illustrates the long road they still have to travel in this race.

Sectors most vulnerable to climate change in Mexico

In Mexico this is worrying, especially for some sectors. According to the consulting firm EY, there are risks to maintaining operations especially for the following sectors in the country:

Energy sector: This sector faces great challenges in terms of decarbonization and adaptation to new international regulations that seek to mitigate environmental impact.

Mining: Similar to the energy sector, mining needs to reduce its emissions and adapt its operations to comply with new environmental regulations.

Transport: Transportation companies face challenges in implementing clean technologies due to insufficient infrastructure and the need to reduce carbon emissions.

Telecommunications: This sector must consider the climate impact on its infrastructure and operations, in addition to complying with new regulations.

Financial institutions: Although not directly vulnerable to physical risks, these institutions are impacted by the need to manage the financial risk associated with climate change and the transition to a low-carbon economy.

Latin America feeds the world

It is estimated that the impact of climate change is equivalent to that of a pandemic every 10 years, says the EY specialist in an interview with Expansión. And the agri-food sector is especially vulnerable in Latin America.

“In Latin America we have an enormous responsibility because today we are producing around 15% of the food that is exported globally, expecting that in 2030 we will grow this export to around 30%,” explains Ruth Guevara. Therefore, efforts must be increased to improve irrigation technology and reforestation strategies.

Can climate change limit nearshoring?

Nearshoring, from which Mexico can benefit because it consists of the relocation of global companies in the country, due to the rearrangement of value chains, could be at risk given the demands of other markets in terms of sustainable supply, explains Ruth Guevara. Given that there are countries like Canada that have very strict legislation that impacts the entire value chain, requiring suppliers to comply with all ESG criteria, including the fight against forced labor, for example.

The risks for export are also real, currently “deforestation-free supply chains” where European Union regulation “applies to Mexican companies that export products” to the old continent, says Rosi Amerena, who is part of of the Executive Committee of Chapter Zero Mexico.

The lack of water is already paralyzing industries

“The water situation we face in Mexico and at a regional level is very important (…) We are seeing in the drought monitor how it is affecting the north of the country and, specifically in Tampico, part of the industry is affected, large companies are in technical labor, so it is going through water,” exemplifies the specialist.

Clean energy can ensure investment flow

But for Ruth Guevara, the important thing is that Mexico is capable of “offering renewable electricity supply, clean energy. Because most of the companies that are about to arrive and are beginning to set up plants have commitments at the level of sustainability and this has to do with reduction of carbon emissions and clean energy supply”.

In Mexico, the EY board points out, there is a great opportunity to do so, but it is an opportunity that must go hand in hand with strengthening energy policy. “We already have regulation that allows private investment in the different parts of the energy value chain and we need to strengthen institutions and the rule of law, so that investment can really flow to Mexico.

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