Political Outlook & Reform in Guatemala
Reforms are deeply necessary in Guatemala but the path forward is neither easy nor simple.
The World Economic Forum last month announced a new initiative to improve socioeconomic conditions in Central America through support for the implementation of environmental, social and corporate governance, or ESG, principles. The organization is partnering with local business organizations in Guatemala, El Salvador and Honduras on the initiative. How important are ESG metrics for companies in Central America, and how well are companies in the region implementing them? How much of an impact have such policies already had on people in Central America, and what promise do they hold for the future? How accurate are the metrics by which companies’ ESG policies and achievements are evaluated?
Devry Boughner Vorwerk, member of the Advisor board and CEO of DevryBV Sustainable Strategies: “ESG is a condition of competition. Companies must commit to pursuing an integrated ESG strategy, and the segmented business must be rewarded beyond short term profit and loss targets; otherwise ESG efforts fail. The WEF deployed a common starting line with metrics focused on people, planet, prosperity and principles of governance. Many Central American businesses that are integrated into the global market are advanced on ESG, but most companies in the region are not. Companies often feel dragged into ESG, while others are open to implementing it but just don’t know what that looks like for their business quite yet. Some businesses in Central America are ‘ostriches’ with their heads buried in the sand and will only advance on ESG through crisis (for example, an investor pulls out of the company or a government imposes a substantial penalty for their lack of action). Ostriches beware! ESG policies have an impact on ability to access capital, insurance, top talent and customers. ‘Greenwashing’ is happening in some instances, which is giving many companies a reason to disregard ESG for fear of retribution from the politicians and regulatory authorities. Yes, compliance and accuracy must improve, and governments need to coalesce around common standards. The key for business in Central America is not to wait for total convergence of standards, but rather to set the intention, goals, discreet metrics, the measurement framework and the compliance/reporting process. ESG can and does unlock new innovation and new revenue streams for Central American businesses.”
Andrea Jarquín, director, and Tatiana Reuben, partner, at Dentons: “In Central America, ESG has become relevant for companies in the financial sector and those sectors that need to transition to a low-carbon economy: energy, transportation, infrastructure, agriculture, food and forest products. Most of these companies are multinationals that are required to follow metrics and sustainability disclosures from other jurisdictions with higher standards such as the United States and entities like the United Nations. The requirements of the U.S. Securities and Exchange Commission and the new IFRS S1 and IFRS S2 standards of the International Sustainability Standards Board enforce new sustainability criteria. This has resulted in a new global financial reporting framework and has increased the relevance of ESG in Central America. At the World Economic Forum, an agreement was reached to apply a set of metrics drawn from existing standards that can be reported by all companies. After the meeting, many companies in Guatemala, El Salvador and Honduras have been adopting these metrics to measure their sustainability efforts and demonstrate their performance against ESG indicators. Central American companies are in the process of creating and adopting standards and policies regarding ESG metrics. However, deep metrics are a challenge for many companies. The impact of such policies is difficult to measure because they are in the early stages of adoption. However, more companies are aware of ESG principles based on the demands of their supply chains. One of the most significant impacts is the commitment companies are making to train their suppliers and employees leveraging the use of digital media to do so even in remote areas. To become more competitive, companies need to operationalize their sustainability efforts and embed the company’s culture with ESG principles to start having a greater impact. ESG measures are still work in progress in the region, and it is early to anticipate the accuracy of such measures. The metrics can provide comparability, which is important for reporting ongoing sustainability efforts and evolve to adopt the selected set of standards.”
Enrique Crespo, CEO of CMI Capital in Guatemala City: “Events such as social movements, climate crises or the pandemic have required companies to redesign their business models to meet higher sustainability expectations. This context has led to environmental, social and governance (ESG) criteria becoming relevant in the way of doing business, particularly in emerging markets such as Central America. Companies must recognize the importance of having measurable, verifiable and achievable indicators in ESG matters, according to their business, their value proposition and the negative externalities that their operation can generate. This will strengthen the company as a responsible corporate citizen and will give it the possibilities to access attractive financing such as green bonds, a process that we have successfully promoted at CMI Capital when we placed $700 million in green bonds. The application of ESG criteria will depend on factors such as the products and services it offers, the size of the company and the countries where it operates. A good principle is to estimate the greatest impact that the company can have on ESG, identifying the effects that the business can have on natural resources, its stakeholders and the economy. Such a diagnosis will allow companies to understand their opportunity areas to structure investment criteria using ESG parameters that let them identify whether all capital investments are consistent with their ESG aspirations. At CMI Capital, we established the sustainable investment criteria with which we evaluated if a project is not only profitable but also makes synergy with our purpose of ‘generating impact investments that drive sustainable development.’ ”
Diana Chavez, executive director of the Private Sector Regional Centre for the Support of U.N. Sustainable Development Goals: “Over the last decade, the concept of ESG has gone from the boardroom to the newsroom. Employees, investors and stakeholders are keen to analyze the corporate community’s impact on society. At the global scale, ESG is one of the hottest trends in finance, as investors increasingly make fund decisions based on company-reported ESG metrics. Today, more than 90 percent of S&P 500 companies publish ESG reports. The WEF has published, in coordination with the ‘Big Four’ accounting firms, guidance on metrics for tracking and disclosing ESG targets. Over the last five years, ESG reporting in Central America has been led by international companies operating in the region. A growing group of local companies, whose operations extend to the U.S. and European markets, have followed suit. While companies are willing to tout their ESG credentials, ESG criteria are limited in scope and focused on the immediate business environment and direct stakeholders. Additional steps must be taken to understand the impact of these policies on the broader community and social license to operate in the region. Global initiatives are not new to Central America. To scale up action on ESG would require transformational change with regard to current policies and corporate governance arrangements. Ownership and accountability frameworks should be established, including accountability for public and non-state actors. This will provide tools to adjust current practices and foster inclusive and long-term resilience programs that improve socioeconomic conditions in Central America.”
Andrea Bonime-Blanc, CEO of GEC Risk Advisory: “The World Economic Forum Central America ESG project is one of several excellent efforts by a variety of actors and stakeholders in business, government and society around the world. It’s great to see how leading companies, NGOs and government agencies in these three Central American countries – Guatemala, El Salvador and Honduras - are embracing the adoption, use and further development and refinement of ESG reporting metrics. It’s very important to develop locally meaningful reporting and impact metrics even if these are still generally unsettled and evolving as we are in a transformational period before the globe reaches any form of ESG metrics consensus. But the work of getting there is getting done through efforts like these. Business has an extraordinary role to play in this evolution as it is already all over Latin America. Companies that want to be leading companies throughout Latin America should sign up for this type of ESG collaboration whether it is through this initiative or others. While the ESG debate is in full swing globally - most of it moving in the direction of acceptance of understanding and tackling the underlying ESG issues, risks and opportunities - unfortunately, politics and polarization have also reared their ugly head in this debate especially in the United States. But I view this as a bump in the road rather than a detour as the U.S. government – at least for now - is embracing these concepts and developments as well. All these trends mean that companies like those involved with this WEF ESG initiative stand to gain a distinct leadership position, reputational opportunity and competitive advantage in attracting local and international partners and furthering the important climate, social and governance work that must be done in their region for their stakeholder ecosystem.”
Reforms are deeply necessary in Guatemala but the path forward is neither easy nor simple.
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