Due Diligence Considerations For Sustainable Investing in Latin America


Increasing prioritization of social consciousness by consumers and regulators is spurring interest in sustainable investment worldwide and Latin America is no exception. The region’s suitability and pursuit of green energy combined with a growing young, multi-ethnic and technologically savvy population is capturing the attention of sustainability-minded investors in the region and beyond. Success in the sector necessitates pairing an understanding of both region-specific risk issues along with knowledge of upcoming policy changes, including the potential economic and social reverberations.

Heading into Q3, firms considering sustainable investments in Latin America have a variety of renewable energy opportunities to consider, ranging from established solar and wind farms to pioneering geothermal and green hydrogen projects. In addition to the region’s abundant natural resources and climate conditions which are ideal for renewable energy cultivation, many governments are actively courting foreign direct investment in their country’s green energy offerings. As global awareness of these opportunities grows, so do the accompanying risks. Key considerations include:

Areas of Interest Risk Considerations
Deal Activity

A number of wind and solar projects in LATAM are nearing completion and scouting exit transactions.

Heavy wind streams along Argentina’s Atlantic coast have tremendous offshore wind technical potential. The government is open to foreign investment in this underdeveloped sector.

Nearly 100% of Costa Rica’s electricity is sourced from renewables. Its decarbonization plan launched in 2019 has been credited with increased foreign green energy investment.
  • Given the solar industry’s dependence on Chinese produced solar panels, pre-investment due diligence for solar projects should actively screen suppliers for potential violations of the Uyghur Forced Labor Prevention Act (US) which went into effect on June 21st. Keep an eye on geothermal energy and green hydrogen which are just taking off.
  • Corruption has been a longtime impediment to regional economic growth. Sustainable investment projects present lucrative opportunities for bad actors to capitalize on. Special attention should be paid to parties involved in securing environmental and land permits including political exposure and prior allegations involving illicit payments.
Elections to Watch

Chile is at the forefront of the region’s green energy innovation. In 2020, it initiated a plan to develop a domestic green hydrogen industry with the goal of becoming one of the world’s top three hydrogen exporters within 20 years. In March, Chile issued the world’s first sovereign sustainability linked bond. Chile’s natural resources, climate and workforce coupled with low levels of corruption position it to become a global green energy leader. However, a recently completed draft constitution has the potential to derail the country’s strong economy by increasing government powers and limiting individual freedoms if approved in a September referendum.

In Brazil, concerns by major global investors surrounding environmental issues, including deforestation in the Amazon, which has increased under President Jair Bolsonaro, are pushing companies to prioritize adherence to global ESG standards. Should Bolsonaro win re-election in October, ESG focused investors are expected to look to shift their funds outside of Brazil.
  • The inclusion of former Chilean President Sebastian Pinera in the Pandora Papers sparked impeachment efforts which failed. The leak revealed Pinera family ownership of a mining project alleged by activists to operate in an environmentally sensitive area. This affair underscores the importance of including adverse media screening and ultimate beneficial ownership tracing when conducting due diligence in LATAM.
  • The growth of green energy projects in remote areas such as the development of solar projects in the Brazilian Amazon necessitates consideration given to the environmental and economic impacts on local communities dependent on natural resources and wildlife to sustain traditional ways of life.

As the region increasingly courts ESG focused investors, verification of companies’ abilities to meet their sustainability promises becomes an integral part of the due diligence process.

Recognizing increasing greenwashing concerns of investors, Colombia recently partnered with the International Finance Corporation to release a green taxonomy. Should this result in an uptick of foreign investment, expect other regional countries to follow suit.
  • A challenge in identifying greenwashing stems from a lack of international ESG reporting standards and definitions. The environmental claims of a potential investment target should be viewed critically with elements of the due diligence process including questionnaires, source inquiries and site visits focused on identifying misleading information.

The aforementioned areas of interest and accompanying risks offer a starting point for sustainability minded investors seeking an understanding of region and sector specific risk management pain points. This knowledge carries two important benefits; stakeholder confidence is bolstered and a risk-based compliance approach, as recommended by government agencies including the Treasury Department’s Office of Foreign Assets Control (OFAC), can be utilized. Diverse opportunities for sustainable investment in Latin America abound. When evaluating them, factor in the rapid pace of change in both the region and green energy technologies, viewing risk management in this context as a continual process rather than a mere pre-deal formality.

Seth Harlan is Senior Associate, Market & Regulatory Affairs at Vcheck Global.

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