Sustainability in Latin America: How to Overcome Challenges

Article | Read Time 8 min
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Diego Ibarra Executive Managing Director - Americas
Net Zero
Carbon Neutrality
Carbon Offsets

While our global climate crisis impacts regions around the world in different ways, it is having a particularly dramatic effect on Latin America. According to a recent AmericasBarometer survey, a vast majority of adults (more than eight in 10) in Mexico, Central America and South America believe that climate change is a very serious problem. In a region that is more susceptible than almost any other to hurricanes, flooding, drought, and issues around food and water scarcity, this is hardly surprising. But climate change in Latin America will also have a profound global impact, affecting the output of minerals, coffee and agriculture. Accelerating sustainability in Latin America is imperative.

Fortunately, the region’s governments are taking action. The Climate Ambition Alliance has brought together 59 nations, including Chile, Colombia, Mexico and 21 other regional countries who are working toward achieving net zero emissions by 2050. But while the region is advancing strongly toward decarbonization, some key issues remain, such as how organizations will mitigate their Scope 1 and Scope 3 emissions to achieve sustainability ambitions not only for themselves but for the entire region.

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Sustainability must be at the core of every organization, requiring a cultural shift that extends to employees, customers and the entire value chain. It’s not easy, which is why ENGIE Impact is committed to working with our clients on their sustainability transformation, delivering tailored plans, strategies and solutions that organizations need to be successful in a decarbonized economy.

The Transition to a Sustainable Economy is no Longer a Luxury, it’s a Necessity

While the world has undergone significant challenges and disruption in 2020, businesses and governments simply cannot ignore their decarbonization and sustainability strategies. This has quickly elevated to a business imperative and COVID has codified the need for organizations and governments to accelerate their sustainability agenda alongside their social justice actions to keep themselves resilient. Operations in Latin America are no exception:

  • Under the lens of risk management, climate change poses considerable risks to organizations in Latin America. Mining, for example, is not only a central piece of Latin American economy, but it is also a critical first building block in the value chain of millions of products globally. Therefore, it’s crucial that this vital global sector take steps to decarbonize to protect not only the environment, but to secure mining’s social license to operate. Already-palpable climate effects on water availability have shifted mining companies’ attention towards the need to invest in desalination, in order to avoid major operation disruptions. At the policy level, it is highly likely that stricter climate change-related policies, such as energy efficiency targets and waste management will cause financial disruptions to organizations that are ill-prepared.
  • At the financial level, leaders in the banking arena have already declared their commitment to invest in companies with a strong sustainability focus. Mammoth finance influencer Blackrock announced to its portfolio companies that sustainability would be more integral to the way the company “manages risk, constructs portfolios, designs products, and engages with companies.” Company CFOs and the broader finance function are critical to establishing the right capital allocation models and governance structures that organizations need to match their strategic intent – and that requires a shift in their traditional responsibilities.
  • Finally, at the commercial level, companies are already feeling the pressure to act. Multiple sustainability global leaders, like Unilever, Microsoft and Tesla are starting to demand high environmental standards from their product and services suppliers in order to reduce their footprint across their whole value chain. Moreover, the increasing public awareness regarding environmental and climate actions in the region means more demanding end-clients, reinforcing the importance of sustainability in commercial competitiveness and securing a license to operate.

Latin America’s Progress Toward a Decarbonized Energy Economy is Inspiring – but it is a Challenging Process

Several factors have driven the deployment of renewable energy and the decarbonization of Latin America’s energy sector in the last decade. Renewable technologies cost reductions, robust renewable energy resource potential across the region, and favorable market-based mechanisms (mainly driven by competitive auctions) have fueled investment in the sector.

According to BloombergNEF, almost 7% of global investment in renewable energy took place in Latin America in 2019, reaching a record high of US$18 billion (excluding large-scale hydro) and adding up to a staggering US $126 billion from 2010 to 2019. Brazil, Chile and Mexico are among the world’s top markets for exporters of renewable energy and energy efficiency technologies.

A mature and reasonably priced renewable energy market across Latin America provides organizations the option to mitigate Scope 2 emissions without requiring an excessive effort on part of their procurement teams. Utilities across the region are increasingly developing new products and “energy-as-a-service” business models that greatly simplify procurement for corporations: from purely financial green PPAs (typically backed up with unbundled renewable energy certificates) to the deployment of on-site physical assets such as solar PV plants.

The key challenge in this space however, is to develop a future-proof renewables procurement strategy, aligned with recognized guidelines, and in tandem with a more general decarbonization strategy. In this way, organizations can take advantage of synergies between Scope 2 reductions and decarbonization of other GHG emission scopes.

The Biggest Challenge to Driving Sustainability in Latin America: Mitigating Scope 1 and Scope 3 Emissions

In order to design and implement cost-efficient and robust decarbonization strategies for Scope 1 and 3 emissions, corporations and governments will need to understand both the evolving technological landscape as well as the intricate and dynamically evolving market of carbon offsets. Some examples include:

Alternative Fuels

The region has the potential to be a key player in the global green hydrogen economy. For example, Chile generated 44% of its electricity from renewable sources in 2019 but has 70 times more potential renewable energy generating capacity than the country currently consumes. To keep exploiting this renewable energy potential and meet emissions goals, the country has launched an aggressive Green Hydrogen Strategy design process. Hydrogen fuel cell applications are emerging for heavy-duty transportation (where electrification would be prohibitive), including mining operations; renewable energy is being used for heat production via hydrogen-based and solar-based solutions; and ‘green’ explosive products based on renewable hydrogen are even being piloted in mining operations. A deep understanding of technology, and its future cost curves and market penetration, will be key to correctly validate the multiple business cases.

Electric Mobility

Although Latin America is lagging in deployment of EV compared to Europe and the U.S., some countries have taken firm steps towards the electrification of transport. For example, Chile has one of the largest electric bus fleets outside China, having deployed 400 e-buses (6% of the entire fleet), of which ENGIE supplied and owns 100. Colombia has set a target of deploying 600,000 EVs and converting 100% of its government fleet to EV by 2030. Costa Rica, on the other hand, aims to have 25% of its vehicle fleet electrified, and 70% of taxis be zero emission vehicles (ZEV) by 2035, among other longer-term targets. Governments and organizations will need to carefully plan the required infrastructure, manage the impacts on the grid and choose from the multiple potential business models.

Carbon Offsets

Carbon offsets are an important, and complicated, tool in the decarbonization toolbox. When implemented correctly—and under recognized, high-quality certification frameworks—offsets can be important drivers of climate change mitigation and resilience, local economic development and job creation, ecosystem preservation, biodiversity enhancement and other social and environmental benefits that might not otherwise be realized. As more companies move forward with carbon neutrality and net zero emissions commitments and their implementation, carbon offsets are expected to play an important role in driving near term emission reductions while companies seek to map out and execute their internal decarbonization strategies.

ENGIE Impact expands to Latin America to meet this need with local expertise. We are excited to announce that we have opened our office in Santiago, Chile, the first of many more that we are planning in the region.

ENGIE Impact’s sustainability experts will combine their global perspective with local knowledge to help organizations throughout the region accelerate their sustainability transformation while managing their cost structures and improving their competitive advantage.

How we will Support Sustainability in Latin America

The challenges to decarbonization may seem intimidating and complex, but in a developing region that has been hit hard by the COVID-19 pandemic, they are also opportunities to strengthen long-term resilience. In order to design and execute successful transformation roadmaps, organizations will need to learn to navigate the dynamic market and policy landscapes of sustainability and develop their own approach to this disruption.

ENGIE Impact lands in Latin America with this key objective in mind. Our raison d'être is to tackle complex multidisciplinary challenges and help our clients—both region-based and global companies with a local presence—to deal with uncertainty.

Our consulting approach utilizes the resources of our sustainability experts with cross-over knowledge from ENGIE to add value for our global enterprise clients. As a global organization with local expertise, we provide key insight into technological breakthroughs, pilot projects, governance models and more to ensure strategies are deployed successfully.

You cannot talk about achieving global sustainability goals without the Latin American market. ENGIE Impact is excited to now have local experts with key regional knowledge to help bridge this gap for our clients and help make their sustainability transformation achievable.

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