Climate change is rising to the top of the political agenda in the US as well as in many Latin American countries, where a growing middle class is beginning to exert its influence. While some progress has been made to improve sanitation and increase access to clean water, deforestation and greenhouse gas emissions remain critical issues facing the public and private sectors in Latin America.
What complicates the issue more in Latin America than in countries in North America is how dependent the economies of many southern countries still are on mining and agriculture. The recently released 2015 Millennium Development Goals Report from the UN notes that South America and Africa recorded the most severe deforestation of any regions between 2000 and 2010.
In the US, the emphasis is on cutting greenhouse gas emission from power plants. President Barack Obama’s latest Clean Power Plan seeks to cut power plant emissions by a third by 2030. His move highlights growing global recognition of the need for renewed efforts to ensure that consumption patterns and production processes preserve the physical environment and reverse damage where possible.
Latin America’s record on environmental sustainability in the last decade and a half has been uneven, according to Joseluis Samaniego, a director of the Economic Commission for Latin America and the Caribbean (ECLAC). On the plus side, significant progress has been made in eradicating slums, expanding sanitation services, and providing access to clean water.
But achieving environmental sustainability is lagging due to dependence on fossil fuels needed to extract minerals and grow crops and raise livestock at the expense of the forests.
Regional governments are showing signs that they recognize the need for stronger environmental regulations to protect the public. But they also are acutely aware of the possible negative impact that stricter rules related to emissions and global warming can have on economic output.
In Panama, for example, the government halted construction of the Barro Blanco hydroelectric dam project by Generadora del Istmo (a Panamanian company) in May 2015 because of repeated environmental and social concerns. Indigenous groups staged ongoing protests, claiming the project was polluting the Tabasara River and would flood their land. Then, in mid-July the government allowed the company to restart the project after it reopened negotiations with the protesters.
Liability for past environmental incidents can also be a problem for companies that engage in mergers and acquisitions in the region. Brazil’s liability laws indicate that a new landowner could be held jointly liable with the former owner for environmental damages that occurred in the past, according to Maria Alice Doria of the country’s International Law Office. Hence, any firm considering M&A activities with Brazilian entities should carefully evaluate environmental liabilities and conduct due diligence of the previous owner’s pollution record.
While businesses and other opponents of tighter environmental laws argue that more regulation restricts economic activity, other groups are putting pressure on government authorities to further increase regulation in coming years.
The region’s growing middle class is better educated and more vocal about demanding clean air and water as well as pushing companies to move away from fossil fuels to more environmentally friendly energy sources.
Foreign firms operating in Latin America’s extractive or agricultural sectors in particular should consider monitoring proposed changes in environmental law in Central and South America as changes are happening fast.
An important source of regulatory information for businesses is the Major Groups and Stakeholders branch of the United Nations Environmental Programme (UNEP). In particular, UNEP’s Division of Technology, Industry and Economics (DTIE) fosters partnerships with the private sector through its four branches: Economics and Trade; Sustainable Lifestyles, Cities and Industry; Energy Climate and Technology; and Chemicals Waste. The DTIE is also an important contributor to the Green Economy Initiative.
Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.