- The latest session of the Regional Action Group for Latin America looked at stakeholder capitalism and ESG in the region.
- It included remarks by the President of Ecuador, Guillermo Lasso, on his new “Government of the Encounter’s” priorities. He highlighted how companies should be fully integrated across the social and sustainable development purposes of the country.
- The work of the private sector and the World Economic Forum in defining standardized frameworks and principles for ESG (Environmental, Social and Governance) is already being used by businesses across the region.
- Business and government leaders shared the challenges and opportunities in the road towards expanding and enabling ESGs adoption in Latin America.
Leaders across Latin America continue to grapple with the challenges posed by the COVID-19 pandemic. Indeed, this week the Pan American Health Organization warned that, if the virus continues to spread at current rates, it will be years before the virus is controlled in the Americas.
Against this backdrop, the World Economic Forum is working to strengthen public-private collaboration and has been convening a Regional Action Group for Latin America: a multi-stakeholder group of regional and global leaders. The aim? To drive a timely dialogue and exchange between decision-makers and action-based efforts on the region's needs and priorities - and to develop a more inclusive and sustainable future post-COVID-19.
Part of this is the role of business, stakeholder capitalism and ESG frameworks, which was the topic of the latest Regional Action Group session.
The need for dialogue
Guillermo Lasso, President of the Republic of Ecuador, who has built his platform on the need to build bridges and create social consensus around responsible governance, opened the session. He discussed his government's priorities under “The Government of the Encounter” programme from economic recovery and social inclusion, health system reform to a programme aimed at tracking child malnutrition among other important social measures.
He also explained his government's vision for social security. "We require a labour reform and social security reform to boost formal employment so that more people can have access to social protection, security and pensions that are fair - in particular women and young Ecuadorians," he said.
Economic growth is vital, he explained, but all his government's work must be built on consensus and dialogue. "Our government will always find a way to establish bridges of dialogue and collaboration," he said. There's no magic formula here, though - "the best way to talk is with the truth".
As World Economic Forum President Børge Brende explained, this message of inclusion and building ties has been well-received and is applicable globally. But the force of dialogue can be underestimated, he said. "Maybe it's common sense. But, common sense isn't always that common today."
Have you read?
The role of the private sector
The private sector has a vital role to play in driving growth and employment, President Lasso told the session. "In order to reactivate growth and employment, we need the private sector to become the driving force of the Ecuadorian economy," he explained.
The energy and mining sector will be boosted with high environmental standards and be focused on the transition to a greener economy. Equally, his government will be 'unrelenting' when it comes to the private sector’s social protection, and tax obligations, Lasso added. It's not enough to simply focus on financial statements, he said. Companies should be fully integrated across the social and sustainable development purposes of the country.
Lasso's government will also make it a priority to advance trade and integration, attract more foreign investment, build incentives for public-private partnerships, entrepreneurship and innovation.
"Ecuador must become and has the potential to become a global financial centre," he explained. This will allow the country to attract investment, expand financial inclusion, benefit from better access to financing and a greater connection with global financial markets.
He concluded by emphasizing the need to give opportunities to young people. From lack of training to connectivity problems, there are challenges to overcome. But with Ecuadorian youth one of the groups hardest hit by economic problems, his government is committed to working on tackling these hurdles.
ESG in Latin America
Following President Lasso’s call for a governance and economic development approach marked by business responsibility and solidarity, business leaders from across the region looked at the challenges, but also successes, in implementing ESG frameworks in Latin America. ESG, the integration of environmental, social and governance factors into corporate strategies and metrics, is in demand in Latin American. As Marisol Argueta, Head of Latin America at the World Economic Forum, explained, embracing ESG as a “pragmatic effort to build profitable but also equitable and sustainable capitalism, founded on a new vision about the role of business and society and the relationship with a state” is not just morally right but is also timely in helping the region address structural needs in the current global climate.
Fernando Faria, Global Deputy Head, KPMG IMPACT and Partner, Infrastructure Advisory at KPMG, offered a message of hope and urgency: "I do think Latin America is prepared [to implement ESG]". The biggest challenge is speed, he explained. This agenda needs to move faster in the region.
The work that the big four - PwC, EY, KPMG and Deloitte - have done with the World Economic Forum to move towards a standardized set of ESG metrics is a response to a demand, Faria believes. "The rising demands of governments, but also rising demands from investors and the population at large," he explained.
Shamina Singh, President of the Mastercard Centre for Inclusive Growth, highlighted that “there is more demand in Latin America than anywhere else in the world”. She agreed with Faria, that the opportunity is significant, but the region needs to move quicker - and it needs to be built into business strategies. Incentives around doing well and doing good must be aligned in these strategies, which is consistent with Mastercard’s approach to inclusive growth and the expansion of financial inclusion.
For Fernando Fernandez, the Executive Vice-President, Latin America at Unilever, building ESG into Unilever's strategy also makes business sense. They not only rely on mass consumption, but also SMEs integrated into their value chains, and If there's "no nature, there are no products for Unilever," he explained. From inclusiveness to integrated development in economies, there are benefits to business and to society.
"Given the strengths and size of our value chain, we're inviting suppliers and customers to accompany us on our journey," he added.
Ecopetrol was the first company in the region to commit to the core Stakeholder Capitalism Metrics released by the Forum’s IBC. As Felipe Bayon, Chief Executive Officer of Ecopetrol, explained, the COVID-19 pressures increased the need for leaders to communicate how they’re addressing stakeholder expectations. As Ecopetrol adopts the ESG framework and already discloses many of its indicators, it is using technology transformation as a catalyst for ESG. Leadership on the issue needs to start from the top "to tell people in the organization why it's relevant and why it's good business". It will take time for businesses to get it right, but we need to start, Felipe emphasized.
You can find out more about the World Economic Forum's work to promote an effective energy transition here.
In a message following the discussion, The Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Barcena, highlighted that mainstreaming ESG criteria should address the inclusion of the region’s firms, including small and medium enterprises, and that coherent and transparent ESG frameworks should be put to the service of guiding investments to a recovery aligned with the Sustainable Development Goals. This includes generating good quality formal jobs, advancing gender equality and women’s economic inclusion, and reducing the environmental footprint of businesses - among others.
The role of the World Economic Forum
Maha Eltobgy, Head of Shaping the Future of Investing at the World Economic Forum, explained the work that the World Economic Forum has already done around stakeholder capitalism and ESG along with an important group of Forum partners. "Everything we're doing is embedded in the concept of stakeholder capitalism," she said. We're aiming to provide instruments for companies to create value beyond financial value.
Have you read?
Eltobgy invited everyone to continue the dialogue - in terms of sustainable investment and growth in the region, but globally too.
And, she explained, that while the work is private-sector led, the Forum is engaging closely in the policy and regulatory space, too.
The Forum invites participants and regional leaders in Latin America to join efforts to lead in the ESG space and advance stakeholder capitalism principles across the region.
You can watch the full session here.