Geospatial ESG investing
Among the trends we identified in our new 2022 Environmental Risk Outlook was the ‘weaponisation’ of environmental and social regulations by governments looking for political, electoral and economic gain.
For example, a burgeoning mining industry could be a godsend for governments looking to boost depleted coffers post-pandemic. And according to our Principal Americas Analyst Mariano Machado, a small number of countries are mobilising well-intentioned environmental regulations, needed to manage mining industry impacts, as a means to achieve domestic political goals.
From galvanising political support, to putting pressure on private stakeholders, or even lending a ‘veneer of respectability’ to creeping expropriation, the deployment of environmental and social regulations could be a useful weapon on the part of governments playing the resource nationalism card.
In Latin America for instance, the resurgence of the ‘Pink Tide’ looks to be accompanied by a ‘Green Wave’ – as a new younger generation of leftist governments in countries including Chile and Colombia look to assert themselves using ‘green’ policies, with positive and negative implications and opportunities for investors.
And assuming the veteran leftist Lula da Silva returns to power in Brazil in October, federal government policy will do a 180-degree turn in favour of environmental protection – both domestically and internationally, as Lula looks to ‘re-position’ Brazil on the global stage. Lula, whose first stint in office (2003-2010) saw government coffers flush on a commodity boom, and whose green credentials back then were somewhat mixed, is now looking to tap into green politics for electoral and diplomatic advantage – which could prompt accusations of ‘greenwashing’.
This new ‘green agenda’ is nothing if not complicated – voters in Chile are set to reject a new constitution top-heavy with environmental and social protections, while pledges by Colombia’s leftist president-elect Gustavo Petro to wean Colombia off its longstanding dependency on the extractives model will encounter strong pushback.
In Mexico, meanwhile, President López Obrador (AMLO) is under fire for his inconsistent environmental policy and double standards, whereby environmental concerns are raised when involving ‘predatory’ private ventures, but largely ignored for state-owned schemes (such as new oil refineries).
This is not just a Latin American phenomenon – opportunistic governments in Kyrgyzstan, Serbia and Guinea have latterly made blunt use of environmental issues to impose political ends.
And neither is it limited to emerging or frontier markets. Canada’s strong environmental framework provides a broad legal basis for selective litigation against projects, including by politically-motivated authorities.
For the extractives, energy, agriculture, transport and infrastructure sectors in particular, it will be increasingly critical to get ahead of policy changes and to work to ‘excellence’, meaning:
Failure to do so on the ground risks disruption and, in extreme cases, closure and asset losses.
And at HQ level, it could also mean some pointed questions on the part of institutional investors, shareholders and judicial instances.