What can Latin America learn from environmental compliance?

By Raul A. Lujan, The Red Flag Group®

Latin America is home to more than 8 percent of the world’s population and covers about 15 percent of the Earth’s landmass. The group of countries that make up Latin America (LATAM) is known for having an extensive variety of ecosystems, and for being very rich in landscapes and natural resources. Therefore, as a rich and healthy region, sustainability issues and needs in many LATAM countries have historically tended to become less obvious and unattended than in other parts of the world.

However, from what we have seen as topical issues currently and in the last year: in particular the wildfires in the rainforests of South America and the Great Green Wall of Africa, as well as within the Australian landmass; environmental concerns have become paramount, and will continue to do so in years to come. Especially at international and global levels.

As global citizens, large corporations, and policymakers have grown aware of environmental affairs and sustainability concerns since the second half of the 20th century, after the United Nations Conference on the Human Environment (1972), the release of the Brundtland Report (1987), and the UN Declaration of Rio on Environment and Development (1992), a majority of LATAM countries began to take part in these efforts. Especially in large countries like Brazil, Mexico, Peru, Chile and Argentina, provisions of law and compliance concepts related to environmental matters began to be enacted and enforced since the decades of 1980's and 1990’s.

In recent years, an increasing number of large and multinational corporations have invested in initiatives and efforts to monitor and review their suppliers’ and supply chains’ adherence to compliance concepts that stem from various sets and laws and regulations, such as the Conflict Minerals provision of the Dodd-Frank Act, and the Supply Chain Transparency Act in California (US), as well as the Modern Slavery Act (UK). In some cases, companies are compelled via legislation to examine and reduce their environmental impact.  Other companies in LATAM are starting to address environmental concerns due to CSR initiatives, reputational pressure and pressure from local communities.

The fact that legal frameworks and compliance concepts associated with sustainability and environmental affairs are fairly new in the LATAM region comes with pros and cons. Among the pros, we can find the following:

  • Environmental compliance frameworks have evolved very quickly, as in most cases they began with the implementation of general laws with broad (however vague) scopes of application, and later came to awareness campaigns directed to citizens and corporations;
  • These legal and compliance frameworks can be complemented by self-regulation and certification programmes, and
  • The enactment of more specialised laws and regulations applicable to different aspects of civil and business activities which have an impact on the environment, at local and national levels.

However, among the cons we can find the following:

  • These frameworks are inevitably challenged by the changing and overwhelming reality of our times, especially at a global level, which includes the current debate of issues like climate change, and the use of fossil fuels;
  • Among the social and political problems inherent to the region that are worth considering, we can include corrupt and illegal practices, such as irregular logging operations in forestry areas, and the hunting or trafficking of endangered animal species;
  • From local and specific-industry points of view, we can include the use of conflict minerals and slave labour. These issues are of special interest for the manufacturing, the food and natural resources-processing, and the IT sectors, among others;
  • Lastly, from a human-rights perspective, it is worth considering the devastation caused to local ecosystems where native species thrive, and where indigenous and rural people reside.

It is also important to monitor and seek to maintain a balance of interests between those of citizens and corporations, and of the State. A case for study that transcended to the sphere of environmental law and compliance in LATAM, and established a precedent on the importance of achieving such a balance, was the arbitration claim of Metalclad v. Mexico entered before the ICSID (an arbitration arm of the World Bank) from 1997 to 2000. In this case, a US landfill-management company that operated through one of its subsidiaries in Mexico, received from the Mexican Federal government a permit to build a toxic waste landfill in a municipality of the state of San Luis Potosi; however, five months after the construction began, the company was notified by the municipal government that it was operating without required permits, as the management and disposal of toxic substances is highly regulated in this country. While the company applied for the permit, it completed the construction of the landfill. Ultimately, the municipality turned down the application and barred the operations of the completed facility; and afterwards, the governor of San Luis Potosi issued a decree ordering the site to be shut-down. Following the shutdown of its local operations, the company filed its claim for arbitration alleging that it was denied fair and equitable treatment by Mexican authorities. The ICSID ultimately solved the case in favour of the plaintiff, ordering the Mexican government to pay USD 16.68 million in damages, according to provisions of the North American Free Trade Agreement. Although this legal proceeding apparently concerned the processing of operational licenses and permits, it ended up becoming a landmark for environmental law and regulation in Mexico, as there have been growing concerns on the social impact of businesses in relation to the protection of the environment across the country.

In addition to seeking a balance of interests between policy-makers and private stakeholders concerning environmental and sustainability matters, it is important to bear in mind that some industries are more strictly-regulated, more sensitive to regulatory changes or legislation reforms, and frequently subject to public scrutiny: these include the mining, construction and Real Estate, toxic waste-processing, and heavy industry/ machinery sectors.

One case which has made headlines in US newspapers in recent years, has been that of “blood gold” and the illegal mining of precious metals in South America, especially in countries like Peru, Colombia and Brazil. Major concerns include the use of mercury in the process of extracting gold, and the infiltration of drug cartels and crime syndicates in the industry, by illegally extracting, melting and smuggling precious metals as an alternate way to launder money. These issues have created a volatile mix that ends up threatening the lives and physical health of native flora and fauna, and of local communities. It is also worth noting that the illegal or irresponsible mining of precious metals, has resulted in the destruction of hundreds of thousands of acres of tropical rainforest, a scenario which resembles the painful experience of other regions (such as that of “blood diamonds” in Africa). Therefore, with newer problems come newer challenges, and the need of doubling efforts to strengthen compliance culture and guidelines among corporate citizens, becomes even more evident.

Other matters that prevail and have aggravated across the region, hence require enhanced efforts to mitigate increasingly-complex risks, include: significant rises of deforestation rates in forestry areas, and even in green belts that surround urban areas; violations of human and ecological rights in the cultivation and extraction processes, primarily in Central America; as well as poor planning, and lack of effective coordination with communities in the development of infrastructure projects (such as hydroelectric dams and transportation channels) between southern Mexico and Central America.

At this point, what can we see on the horizon for future changes and strengthening compliance culture in LATAM, concerning environmental and sustainability issues?

  • The public demand for the implementation of meaningful and enhanced environmental policies has increased within the last five to ten years. Thus, the enforcement of civil and criminal actions related to environmental affairs has, and will continue to, become more assertive in this region;
  • In relation to the previous point, legal and compliance professionals have been encouraged and advised to stay observant and up-to-date, on further changes in laws and regulations in countries where their companies and clients intend to operate projects that carry an environmental impact;
  • Other regulatory agencies from abroad, like the US Environmental Protection Agency (EPA), have entered into cooperation agreements, to offer and provide information, as well as economic, legal and policy tools, for building capacities in reducing environmental degradation and its impact on public health. Especially since 2016, the EPA has enhanced strategic ties with countries that have aimed to implemented compliance efforts in this regard, especially with member States of the South American Environmental Enforcement and Compliance Network (REDSUFICA).

Lastly, in relation to the variety of risks referred above: what can companies do to mitigate risks when it comes to local and regional environmental compliance?

  • Follow best practices that prevail across each industry at a global level, and seek to attain, update and/or upgrade certifications (such as ISO 14001, for environmental management standards, and ISO 26000, for sustainability development standards) on a regular and consistent basis;
  • Conduct due diligence on third parties that will supply goods to them; that should perform services on their behalf, and/or represent their interests before beneficial clients or end-users, in both public and private sectors. In the understanding that due diligence is helpful to assess risks before engaging third parties, and to take measures to prevent risks that can be foreseen;
  • Stay updated on changes to relevant laws and regulations, considering that the political and socio-economic landscapes have tended to change swiftly across several LATAM jurisdictions, especially as of recent years;
  • Make not only a legal, but also a smart use of legal and economic instruments offered by public authorities from time to time, to follow best practices and adopt higher standards of ethical conduct, as well as to promote industrial innovation (these legal and economic instruments may include fiscal and economic incentives, and engagement in sponsorships and public-private partnerships that can offer added value to public services and communities, among others.
     

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