special report: esg
IDB and IDB Invest publish asustainability index of 100 publicly-traded companies that do business in Latin America and the Caribbean and abide by ESG principles. Here are three pursuing green strategies
BY CHARLES NEWBERY
A few years ago, fishermen in Coronel, Chile complained that the local power plant’s cooling system was reducing their catch. Rather than shrug off the grumbling, Colbún, operator of the generator, spent $5 million to install filters that prevented fish from being sucked into the cooling pipe.
Competitors soon faced costly shutdowns until they fitted systems like Colbún’s. By acting early, “we protected the asset and kept it from being questioned by the authorities,†says Pedro Vial, Colbún’s chief public affairs officer.
Being proactive is important in an industry frequently scrutinized for environmental concerns. “We live in a world where people can instantly complain over social media, putting business reputations at risk,†Vial says.
The company started to improve its ESG standards 12 years ago, allowing it to preempt some potentially costly problems. A reverse osmosis plant halved its consumption of water for cooling in a drought-prone region. Construction of commercial facilities has made its dams into public attractions where visitors can swim, hike or peruse an arboretum.
“We live in a world where people can instantly complain over social media, putting business reputations at riskâ€
Pedro Vial, Colbún
Payback “may not be in a year,†Vial says. “But in the medium term the company will become stronger.â€
Colbún, whose net income soared to $230 million in 2018 from $80 million in 2014, sees its ESG operations as part of a strategy to double its generating capacity over the next decade will come from renewables, and competition for cleaner energy is growing.
Still, Colbún will need to cut costs and grow sales as market liberalizations drive down power prices, says Ezequiel Fernández López, an analyst at Credicorp Capital. As contracts come up for renewal, generators likely will get half the $90/MWh they have previously charged distributors.
Colbún has an advantage, thanks to a larger share of renewable energy in its portfolio than competitors. “Even so, the company could come under scrutiny from communities where it builds a wind or solar farm, for example,†Fernández López adds. Colbún’s response will be a test of its ability to showcase its ESG goals.
In Mexico and Central America, Walmart is phasing out single-use plastic bags at its more than 3,300 stores. Some cities have banned them, but for the region’s largest retailer, the effort is part of a wider strategy to grow sustainably.
The company, controlled by the US retail giant, is reducing plastic packaging and waste. It is also cutting carbon emissions, sometimes supplying stores with power from its own wind farms and hydropower plants or by installing solar panels on rooftops. It is moving distribution centers closer to consumers to reduce fuel consumption for deliveries. The installation of LED lighting, refrigerator doors and large windows for natural lighting saved it some $20 million on power consumption in 2018.
“We know that our size has to be equal to our responsibility,†says Claudia de la Vega, director of development and corporate responsibility at Walmart de México y Centroamérica, known as Walmex.
Walmex also has created committees on ESG issues such as diversity and inclusion, responsible sourcing, and ethics and compliance. It has improved corporate culture, adding perks like working from home, professional training and five-month maternity leaves. One goal is for 50% of executive posts to be held by women in 2020, up from 36% this year, says de la Vega.
ESG concerns and the courting of responsible investors has become so important for Walmex that its CEO, Guilherme Loureiro, runs the corporate responsibility committee, which also spearheads long-term strategy.
“We know that our size has to be equal to our responsibilityâ€
Claudia de la Vega, Walmart
The efforts have helped Walmex’s reputation recover from 2012 allegations that it bribed officials to speed up permits for building new stores, says José Antonio Cebeira, an analyst at Actinver.
Add in improvements in customer service, management and worker pay as well as the rollout of new e-commerce services, and the result is that public perception of the company “has improved considerably,†Cebeira says.
The goodwill has translated into profits. Walmex’s EBITDA reached a record 61.7 billion pesos in 2018, up 11% on the year.
At the end of 2017, EDP Brasil entered a small but growing market. The power utility teamed up with the German carmaker BMW Group to build six charging stations on the Presidente Dutra Highway between Rio de Janeiro and São Paulo. Drivers can now make the 270-mile trip in electric cars without worrying about running out of volts between Brazil’s two biggest cities.
The investment made sense for the company, a unit of Portugal’s EDP. Installing chargers promotes the use of electric vehicles, an emerging market for power utilities in Brazil. A total of 4,172 EVs were sold in the first eight months of 2019, up 5.1% from 3,970 in all of 2018, according to Brazil’s National Automakers Association. The Boston Consulting Group foresees two million EVs plying the country’s roads by 2030.
The investment also helps the company’s image. Miguel Setas, EDP Brasil’s CEO, says Brazilians are more concerned about their environment, especially in light of this year’s huge fires in the Amazon rainforest. “You cannot be in business today if you do not cater to these concerns,†he says.
His company built its last coal-fired power plant in 2012 and doesn’t plan to go back to that business. Instead, it’s focused on expanding its hydro and solar power capacity as well as on building transmission lines and EV charging stations.
“You cannot be in business today if you do not cater to these concernsâ€
Miguel Setas, EDP Brasil
This is part of a broader strategy to build brand recognition. EDP Brasil has invested more than $25 million over the past decade in culture, education and sports, as well as social projects ranging from book fairs to helping restore the Portuguese Language Museum in São Paulo after it was destroyed by fire. He also believes investors are watching. “ESG has allowed us to have access to a large investment community around the world,†Setas says. “It is an important trigger to unlock additional investment in the company.â€
While it’s uncertain how much the ESG initiative has helped the company’s bottom line, EDP Brasil’s EBITDA surged 26.6% to 2.8 billion reais in 2018 from 2.2 billion a year earlier, and Setas estimates that it will continue to grow at a 10% to 12% compound annual growth through 2022, twice the 5%-6% rate of recent years.
