Answer ... Given the breadth of ESG, there are no comprehensive regimes or codes that govern ESG compliance in Mexico. Nonetheless, although ESG is not as well developed in Mexico as in other jurisdictions, multiple laws and regulations in the Mexican legal framework – applicable at all levels of government – relate to ESG. The most important of these is the Federal Constitution, which enshrines human rights that fall within the scope of ESG, such as:

• the right to a clean environment;
• the right to work;
• the right to free choice of employment; and
• the right to just and favourable working conditions.

Environment: Multiple laws and regulations include provisions relating to environmental matters, such as:

• climate change;
• emissions;
• environmental impact assessments for projects and certain activities;
• energy transition and efficiency;
• waste management; and
• the circular economy.

At a national level, examples include:

• the General Law of Ecological Equilibrium and Environmental Protection;
• the National Waters Law;
• the General Law for the Prevention of Comprehensive Management of Waste;
• the General Climate Change Law;
• the Energy Transition Law; and
• the recently enacted General Law on the Circular Economy.

Social: Several laws and regulations include provisions relating to issues such as:

• business and human rights;
• working conditions;
• prevention of discrimination;
• indigenous consultations; and
• social impact assessments for infrastructure projects and activities.

At the national and federal levels, examples include:

• the Federal Labour Law and its regulations;
• the General Victims Law;
• the General Law for the Prevention and Avoidance of Discrimination;
• the Power and Hydrocarbons Law; and
• the National Security Law.

Governance: Several laws and regulations include provisions applicable to:

• governance matters;
• compliance (including anti-corruption and anti-money laundering); and
• tax matters.

At the national and federal levels, examples include:

• the General Law of Commercial Companies;
• the Securities Market Law;
• the Mutual Funds Law;
• the General Law of the National Anti-corruption System; and
• the Federal Tax Code.

There are also non-governmental frameworks whose application is voluntary for publicly listed companies (comply or explain), such as:

• the Corporate Governance Code of Principles and Best Practices issued by the Business Coordinating Council; and
• the Sustainability Guide issued by the Mexican Stock Exchange (BMV).

Moreover, the Mexican Association of Retirement Funds Managers (AFOREs) recently announced that it is working with the public and private sectors on an ESG taxonomy, to be launched later this year. The aim is to define what ESG investment means, ensure that investments selected by retirement funds meet such ESG objectives and thus avoid greenwashing.

Answer ... The Mexican ESG framework is based both on hard and soft law. Several hard law sources, such as laws and regulations, incorporate mandatory provisions relating to ESG matters. Additionally, publicly listed companies must disclose certain information relating to:

• environmental matters (eg, the impact of climate change on market trends concerning their business and as a risk factor for their operations);
• labour matters (eg, total number of employees and percentage of unionised workers); and
• governance matters (eg, board composition).

However, mandatory disclosure of these matters is minimal when compared to that required in more developed markets.

Moreover, there are certain non-governmental frameworks (soft law provisions) whose application is voluntary for publicly listed companies (comply or explain), such as:

• the Corporate Governance Code of Principles issued by the Business Coordinating Council and Best Practices; and
• the Sustainability Guide issued by the Mexican Stock Exchange (BMV).

These frameworks provide useful guidelines for companies that wish to set higher standards on ESG matters beyond the mandatory provisions, which remain underdeveloped in Mexico.

Answer ... There is no centralised governmental body in Mexico responsible for enforcing obligations relating to ESG matters, or for verifying compliance and imposing sanctions. Instead, several governmental bodies are responsible for these matters and their authority varies depending on the subject matter of the ESG-related criteria. Examples of these entities and regulators include:

• the Ministry of Environment and Natural Resources, the Environmental Protection Agency, the National Water Commission and the Ministry of Energy, which address several issues, such as:
• • environmental;
  • climate change;
  • social impact assessments;
  • energy transition; and
  • sustainability compliance;
• the Ministry of Labour and Social Welfare, which has authority to enforce labour and social security obligations; and
• the Federal Antitrust Commission, which has the authority to enforce obligations in relation to competition.

In Mexico, governmental bodies only have the authority expressly granted to them by law and thus can act with regard to ESG-related matters only as expressly authorised by law and to the extent provided therein.

Answer ... Certain ESG-related matters have significant relevance to the public conversation and are thus actively enforced by the regulators. These include:

• labour and outsourcing, which are addressed by the Ministry of Labour and Social Welfare;
• money laundering, which is addressed by the National Banking and Securities Commission and the Financial Intelligence Unit; and
• data privacy management, which is addressed by the National Institute for Transparency, Access to Information and Personal Data.

The actions of these regulators and governmental bodies can be challenged before and reviewed by the judiciary.

The regulators’ general approach to the enforcement of the ESG framework in Mexico is still focused on legal and regulatory compliance. No identifiable efforts to enforce public commitments (beyond legal or regulatory requirements) or to prevent greenwashing have been made by companies regarding ESG matters, as has happened in other jurisdictions.

Answer ... The private sector in Mexico has been actively involved in developing an ESG framework. One of the most relevant sources of soft ESG law issued by the private sector in Mexico is the Corporate Governance Code of Principles and Best Practices issued by the Business Coordinating Council (an independent body that represents affiliated private businesses in Mexico), originally launched in 1999 and updated from time to time. The code provides guidance and recommendations for companies to adopt in order to improve their governance. This code has influenced Mexican securities market regulation in relation to the governance of listed companies.

In addition, the Mexican Stock Exchange (BMV has engaged in the active promotion of codes and guidance that have complemented the ESG framework. One of the most important examples is the BMV’s Sustainability Guide, which sets out guidelines and recommendations for listed companies, based on multiple international sustainability frameworks.

Recently, the Institutional Stock Exchange (BIVA) announced that it has launched the Chief Sustainability Officer (CSO) Acceleration Program, the first of its kind in Mexico and Latin America, which seeks to promote and accelerate the integration of corporate sustainability in current and potential issuers in the Mexican stock market.

The Green Finance Advisory Council has been another important contributor. This is a representative body of the Mexican financial sector that promotes:

• best practices in green and sustainable finance;
• capacity building among market players; and
• the mobilisation of capital to enable the transition to a greener, more equitable and resilient economy.

It also tracks and publicly reports activity on green and sustainable finance in Mexico.

We have also seen valuable initiatives by individual companies and industry groups. For example, companies in the gas sector have recently engaged more actively in voluntary carbon credit mechanisms, aimed at voluntarily reducing their carbon footprints. These mechanisms can operate in parallel to mandatory markets.

In recent times, Mexican companies have increasingly been endeavouring to become more sustainable, so a larger number of entities are developing and implementing measurable initiatives and considering incentives to move away from the use of fossil fuels, which in most cases are much cheaper than green fuels.

Answer ... In principle, all Mexican entities can be subject to ESG-related provisions, given the broad scope of application of the ESG-related framework. For example, most of the labour-related provisions apply to all companies in the recruitment of employees; and the anti-corruption provisions are binding on all Mexican entities. Companies engaging in energy and infrastructure projects must comply with strict environmental and social impact assessments, as well as with energy transition and climate action strategies.

That said, ESG-related matters have more significant implications for certain entities for different reasons, such as their core business activity or the type of entity they are. For example, companies that engage in activities involving a high volume of water usage or water treatment have additional environmental and social responsibilities to those in a different line of business. The same can be said of companies that develop infrastructure and energy projects near indigenous communities or natural reserves. Likewise, publicly listed companies in Mexico are bound by stricter governance provisions than private companies.

Answer ... Despite the limited extent of ESG regulation in Mexico, many entities are adopting ESG policies in their operations. In some cases, companies are doing so voluntarily in order to meet higher standards and improve their relationships with stakeholders (from employees to customers, financiers and regulators). In other cases, ESG policies are being adopted in order to meet criteria or standards set by parent companies located outside Mexico or by key customers which are subject to stricter regulations (eg, due diligence obligations in their supply chain). As a result of international trade, certain ESG standards are ‘travelling’ beyond their original jurisdictions and becoming soft law in multiple territories for subsidiaries and suppliers.

The natural way for an entity to incorporate an ESG-related framework into its operations is to adopt codes of conduct and policies for its daily operations. Mexican law allows entities to self-regulate in relation to certain matters, which means that companies can decide to adopt and implement binding processes and policies for the performance of their activities. One of the best examples of self-regulation concerns the governance of companies. Companies often incorporate governance provisions in their bylaws (eg, requirements for becoming a board member, minimum number of independent board members, provisions regarding the creation and attributions of committees) that must be followed by company officers, members of the board and shareholders, as applicable.

Mexican private companies are also increasingly committing to adopt environmental and sustainability goals beyond legal requirements to reduce their carbon footprints, and to have a more positive impact on the environment and empower local communities. Likewise, companies are increasingly adopting specific commitments in relation to diversity and inclusion matters and are making these public through different means of communication (both internal and external) and reporting. Although these commitments are not usually judicially enforceable, they are useful tools for companies to adopt in order to meet higher standards and be more accountable to their stakeholders.

Answer ... As there is no comprehensive or developed ESG framework in Mexico, implementation can often be challenging. Apart from the typical regulatory provisions and enforcement thereof, there are no specific ESG laws or regulations. In several cases the ESG-related provisions scattered across the Mexican framework are rarely or poorly enforced, and there are still limited incentives to design and implement ESG-related strategies. These shortcomings are being addressed by promoting ESG implementation by market participants and issuing specific codes and policies to advance such implementation.

Answer ... There is no legal framework on ESG disclosure obligations that applies to all companies in Mexico. Nevertheless, although there are no general obligations to report on ESG matters, companies are often bound to file reports with various authorities entrusted with specific tasks, such as:

• the Ministry of Environment and Natural Resources for environmental matters; and
• the Ministry of Labour and Social Welfare for labour and social security matters.

Companies that are listed as issuers on a stock exchange must issue annual reports covering certain ESG matters, although these are very limited when compared to those in other jurisdictions. In these reports, companies must disclose information on matters such as:

• the material impact of climate change on market trends concerning their business;
• activities which could represent an environmental risk and the measures being taken to mitigate such risks;
• basic information on employees, including the number of unionised employees; and
• information on the issuer’s corporate structure and processes, such as standard information on shareholders, relevant officers and accounting policies.

Due to recent regulations issued in Mexico, retirement fund managers (AFOREs) and investment companies specialised in retirement funds (SIEFOREs) are also bound to disclose information on how they incorporate ESG criteria into their investment strategies and risk management.

Answer ... It is common for listed companies in Mexico to voluntarily disclose ESG information to their stockholders and other stakeholders, as this improves their reputation and may give them access to better investment opportunities and financing terms. These reports are often issued on a yearly basis along with the mandatory annual report. Some of those companies disclose their ESG-related information based on Global Reporting Initiative (GRI) standards, which encompass most of the main sustainability-related disclosure matters that a company should consider disclosing and provide guidance on how this information should be disclosed.

The GRI standards include several matters that are directly related to ESG, such as:

• the company’s performance in relation to anti-corruption actions;
• its market presence;
• initiatives to promote sustainable use of energy and water; and
• labour-related matters such as relations with workers and health and safety in the workplace.

Listed companies also commonly disclose their information based on the Sustainability Guide issued by the Mexican Stock Exchange (BMV), which provides a framework that can be implemented by companies that wish to achieve specific sustainability goals, including a framework for the disclosure of such information.

Answer ... ESG is a tool through which companies can manage material risks relating to ESG matters and to identify opportunities in these areas. The board of directors is ultimately responsible for supervising how a company manages risk. Therefore, the board should supervise ESG activities.

A company’s ESG strategy should be reviewed and approved by the board. Moreover, any disclosure of ESG compliance information should ultimately be reviewed and authorised by the board. In performing its duties, the board may be assisted by committees. Committees in turn receive input from, and rely on information provided by, subject-matter experts, both internal and external (eg, consultants, rating agencies). Given the breadth of ESG and the multiplicity of inputs, it is advisable for a company to appoint an ESG leader who is responsible for coordinating and gathering all relevant information from all areas of the company, as well as from external sources.

There is no ‘one size fits all’ approach for deciding which corporate function should coordinate multi-disciplinary ESG-related efforts; this decision will depend on several factors. In our experience, in recent years it has been common for public companies based in Latin America to entrust their sustainability function as ESG lead (~50%), while other companies entrust corporate affairs (~25%) or other functions, such as legal, compliance, communication, etc. (~25%). Recently, we have seen an uptick in the number of companies giving their legal and compliance functions a more prominent role regarding ESG. Irrespective of who leads the ESG efforts, the legal and compliance team will play a fundamental role. An ESG programme without a compliance element (including ethics) would be incomplete and ineffective. Moreover, ESG is a management tool and good management depends on sound corporate governance – and the legal function is primarily responsible for the set-up and revision of governance systems.

Answer ... Companies should follow a clear and defined process in order to make proper disclosures. To determine the required extent of such disclosures, companies should take the following steps:

• Map their material obligations and commitments regarding ESG-related matters;
• Verify the existence and integrity of the tracking and monitoring systems implemented to measure progress in this regard; and
• Analyse the information to be disclosed in order to make sure that it covers material ESG matters.

Answer ... Although companies take various different routes, one of the most common approaches is to start with a materiality assessment, through which the company can identify, assess, manage, monitor and communicate material ESG risks. An ESG strategy should focus mainly on material risks relating to ESG matters and not on all risks.

A materiality assessment involves the following steps:

• Identify those stakeholders that rely on your company and those on which your company relies for its long-term success;
• List any ESG issues that may be relevant to your company or your stakeholders;
• Evaluate the relevance of such risks to your business and the extent to which they could affect your business, financial condition, operating results, prospects, stock price or reputation;
• Evaluate the importance of the identified ESG issues to key stakeholders;
• Map each of the identified issues in a matrix;
• Engage internal and external stakeholders to review and refine the matrix; and
• Identify material issues on which you will focus your efforts.

A materiality assessment is a dynamic rather than static process, as issues and their potential impact on a company’s business, as well as stakeholders and their perspectives, change over time. Therefore, companies should repeat this process regularly to maintain the value and effectiveness of its outcome.

It is also important to ensure your company:

• has a record of its commitments regarding ESG matters (eg, achieving net zero emissions by a certain date; increasing workplace diversity by certain percentages; investing a certain amount of money in minority-owned businesses); and
• has appropriate processes for keeping track of these pledges, from measuring performance and impact to data collection and reporting.

In other words, companies must implement a governance process for their ESG commitments, since the costs associated with not delivering on them can range from reputational harm to legal liability.

Companies that successfully implement ESG-related criteria in Mexico often have an integral strategy in which they provide guidance on ESG issues by engaging in activities such as:

• issuing codes of conduct and policies applicable to the company’s daily operations;
• training employees based on an ESG focus; and
• implementing data capture and reporting systems in relation to ESG matters.

Answer ... As the board is the ultimate corporate body responsible for supervising a company’s risk management, and ESG is a tool to manage risks, the board must approve the ESG strategy and overall plan. To this end, the board may be assisted by certain specialised committees comprised of experts from different disciplines and tasked with specific duties relating to ESG matters (eg, audit committee, sustainability committee and compensation committee). These committees usually report to the board and have the authority expressly granted to them by the board. The board and the committees can be also assisted by subject-matter experts, both internal and external.

In order to successfully implement an ESG strategy, companies should adopt an integrated approach and work in close collaboration across functions.

Answer ... The most convenient and efficient manner to measure progress in relation to the implementation of an ESG strategy is to establish clear goals and standards to be met in the company’s daily operations. This often involves establishing key performance indicators (KPIs) based on the expected level of compliance with the relevant ESG criteria that are being implemented. KPIs should focus on critical ESG-related matters and should be designed in a manner that allows for an objective review of progress.

KPIs may not only cover internal actions taken by different functions to pursue ESG objectives, but also set objectives based on external factors, such as tracking actions by third parties (eg, regulatory investigations, fines imposed), during a particular period.

In certain cases, companies are assisted by third-party experts to measure progress in their implementation of, and compliance with, ESG-related initiatives.

Certain large Mexican companies are subject to evaluation and rating by international ESG rating agencies, although this industry is not yet as well developed in Mexico as it is in other jurisdictions.

Answer ... As the corporate body responsible for overseeing risk, the board is ultimately responsible for the ESG, given that this is a risk management tool. Therefore, the board must also perform all tasks required for the company to monitor the expected results. These include:

• approving the strategy, the overall plan and the main initiatives;
• allocating proper resources;
• reviewing consolidated reports;
• asking all questions that it deems necessary; and
• proposing the relevant adjustments.

Likewise, all business areas implicated in ESG compliance should have the proper means available to measure, track and record performance against previously defined goals and KPIs. They should be able to report their progress to the ESG leader, the relevant committees or the board, depending on the governance structure of the company.

The ESG leader should also be able to prepare consolidated reports presenting objective information that can be submitted to the board.

Answer ... Executive compensation linked to ESG performance is in the early stages of development in Mexico. To our knowledge, few companies currently compensate executives based on the performance of ESG metrics. By aligning executive compensation with an ESG strategy and specific metrics, companies can provide a clear path towards common objectives and incentivise action.

Where this tool is used, companies should put in controls to ensure that:

• the relevant executives have the authority and capacity to drive action on the matters which are linked to their compensation; and
• the integrity of both the executives’ actions and the data are not compromised for the sake of showing progress.

Answer ... Although certain ESG issues are common to certain sectors or industries, individual companies must take their own particular situation into account when designing and implementing an ESG strategy. Therefore, companies should start the design of their ESG strategy with a proper prior diagnosis of their own situation, based on a materiality assessment (see question 4.1).

In addition to designing and implementing an ESG strategy, companies should:

• actively monitor performance against previously defined goals; and
• clearly define the roles that all functional areas are expected to perform.

Answer ... Lenders in Mexico generally still focus primarily (and almost exclusively) on the borrower’s financial standing and solvency in granting credit. Nevertheless, it is common practice in Mexico to incorporate environmental and social provisions into project financing and corporate loan agreements that must be complied with by the borrower. These standards are usually based on international frameworks such as the Equator Principles, which define certain guidelines to be met by borrowers in executing their projects that directly relate to environmental and social matters. That said, in the past couple of years, lenders (especially those with a global or international footprint) are paying more attention to environmental performance of borrowers to assess risk and we believe this trend will continue to grow.

ESG matters in Mexico are often considered more by investors when investing in the stock exchange. This is particularly the case for public investors, as ESG-related information has gained greater relevance in recent years. One example of this is the establishment of an ESG index in the Mexican Stock Exchange (BMV), which measures the fulfilment of ESG-related criteria by participating companies and releases information to the public on their level of compliance. Another example is the steady growth of green and social bonds issued by various companies and multilateral financial institutions which are listed and traded on the Institutional Stock Exchange (BIVA).

Answer ... There have been efforts to promote the issuance of green and sustainable bonds in Mexico. Green and sustainable financing has increased considerably in recent years and billions of pesos have been obtained through the issuance of these bonds in the past two years alone. According to the Green Finance Advisory Council, the issuance of green and sustainable bonds was 2.7 times greater in 2021 than in 2020. Financing through green and sustainable bonds and loans allows the issuer or borrower to finance green and climate change-related projects, and provides the investor or lender with certainty that the resources will be used to finance such projects.

Green and sustainable bonds do not currently account for a large proportion of the Mexican securities market, but there is certainly increased interest and positive momentum in these instruments.

Answer ... One of the most relevant developments relating to the promotion and regulation of green and sustainable bonds is the creation of the Green Finance Advisory Council – an entity comprised of representatives from the Mexican financial sector that seeks to promote the financing of projects that have a positive impact on sustainability. The Green Finance Advisory Council has issued certain guidelines to be followed by issuers of green bonds in Mexico in order to provide a greater level of certainty to investors. These include an obligation to obtain third-party certification in relation to the nature of the project that is being financed.

Social and gender bonds to the value of more than MNX 20 billion (~US$ 1 billion) have also been issued by both governmental and private entities. Examples include:

• the social bonds issued by development bank FIRA in 2022; and
• gender bonds issued by Institute of the National Fund for Workers’ Consumption in 2021.

Answer ... Investors and lenders have become increasingly interested in companies that are implementing ESG initiatives in recent years. Companies entering the sustainable financing space should be prepared to disclose the performance of their ESG-related activities to investors and lenders through a contractual or mandatory framework, as the case may be. When done property, this should open more attractive financing opportunities.

Likewise, companies interested in obtaining financing through issuing green and sustainable bonds should design and implement codes and regulations based on soft ESG frameworks that can help them achieve their financing goals, such as the Green Bond Principles issued by the Green Finance Advisory Council.

Answer ... Global and domestic institutional investors (investment funds, insurance funds and pension funds) have helped encourage Mexican companies to incorporate ESG-related provisions into their operations, as the presence of global institutional investors on the Mexico market has increased in the past decade.

Answer ... Unlike in other developed markets, such as the United States and the United Kingdom, Mexican public companies normally have controlling shareholders. Therefore, the level of influence that can be exerted by public shareholders in Mexico is not as significant as it is in markets where the shareholder base is diverse and control rests with the market. Thus, shareholder activism as it is known in the United States is relatively uncommon in Mexico. The shareholders of Mexican listed companies usually adopt other methods to influence the companies in which they participate – typically through active but private engagement and dialogue with top management or board representatives.

Answer ... As shareholders do not publicly engage in ESG-related activism, it is not possible to tell whether they have focused more on certain ESG areas over others. However, in our experience, the most relevant matters under discussion concern:

• climate change and the environment;
• anti-corruption; and
• labour and working conditions.

Answer ... Most ESG-related activism occurs through private conversations (engagement with top management and board representatives) initiated by institutional investors. We have not seen high-profile instances of ESG activism in Mexico in recent years.

Answer ... Private engagement on ESG-related matters has increased in recent years, especially from institutional investors; but public ESG activism is not visibly growing in Mexico as in other developed markets.

Answer ... Companies’ performance on ESG-related matters is certainly influenced by the stakeholders with which they engage in the ordinary course of business. Companies must adapt to the requirements of these stakeholders as they change from time to time. Companies that successfully design and implement ESG strategies must be prepared to fulfil the ESG-related requirements of their stakeholders, and the ESG strategy must leave room for them to do so.

For example, multinational business-to-business customers are increasingly requiring their suppliers to adopt product safety measures in their production processes to mitigate certain legal risks in their home markets. Therefore, suppliers are often bound to comply with certain ESG-related provisions included in the relevant agreements, as required by their customers. Equally, suppliers are often required to comply with their customers’ anti-corruption codes and policies.

Local communities are playing a key role in shaping the ESG landscape for companies operating in Mexico, especially large ones. For instance, we have seen large industrial projects stopped during construction and then relocated due to concerns from and opposition by the local communities in relation to water and other forms of environmental and social impact. In certain cases, the processes followed by community members are not set out in the law and rather represent types of social activism.

Answer ... Interest in ESG is steadily growing in Mexico. Although the laws and regulations relating to ESG implementation, compliance and disclosure remain underdeveloped, several efforts have been made by Mexican regulators and stakeholders, especially in the financial industry. One example is the issuance of the General Provisions in Financial Matters applicable to the Retirement Saving Systems in 2022, which provide guidelines on ESG-related matters that must be followed by retirement fund managers (AFOREs) and investment companies specialised in retirement funds (SIEFOREs).

In 2020, a new General Law of Corporate Responsibility and Due Diligence was proposed in the federal Senate to promote responsible behaviour of companies and avoid negative impacts that may be associated with their activities in relation to supply chains and other commercial relations, workers’ conditions, human rights and environmental protection, among other things. However, this proposal did not gain traction and has not been discussed in legislative commissions.

The Mexican Association of Retirement Funds Managers (AFOREs) recently announced that it is working with the public and private sectors on an ESG taxonomy, to be launched later this year. The aim is to define what ESG investment means, ensure that investments selected by the retirement funds meet such ESG objectives and thus avoid greenwashing.

Mexico is one of the countries with the highest number of international trade treaties, which makes it a very open economy. In our opinion, international trade, the increasing presence of global institutional investors and the international standards used by financing entities will continue to raise the bar on ESG matters for participants in the Mexican market.

We have also seen the successful implementation of a diversified approach involving the participation of various different sectors. The main components of this approach include:

• public bids for the development of solar, wind and geothermal energy generation projects;
• the issuance by the Energy Regulatory Commission of clean energy certificates that certify the production of a certain amount of electricity from clean energy;
• the introduction of a special federal tax on fossil fuels for carbon content and several local environmental impact and emissions taxes;
• reforms to the General Law on Climate Change and Energy Transition Law, which oblige the Mexican government to implement an emissions trading system (ETS) and continue supporting the development of clean energy projects; and
• the support and implementation of voluntary carbon offsets with the participation of multiple private stakeholders, mainly through standard verification processes such as Verra and Gold Standard.

The implementation of an ETS is one of the government’s solutions to achieve the goals of the Paris Agreement by obliging and incentivising companies to use green fuels or to modify their operations to reduce emissions. Currently, the ETS is in a test stage, in which the only participants are facilities that conduct activities in the energy and industry sectors and whose annual emissions are equal to or greater than 100,000 tons of direct carbon dioxide emissions.

It is safe to predict that in the coming years, the framework of hard and soft law regarding ESG-related matters will continue to grow, and that as a result more companies will implement and adopt ESG strategies and criteria in their operations.

Answer ... ESG is a very broad and dynamic field. When designing an ESG strategy, companies should conduct a comprehensive analysis of:

• the ESG guidelines applicable not only in Mexico, but also in other jurisdictions that may affect their business (as a subsidiary or a vendor); and
• international standards and key trends in their respective industries.

A well-thought-out materiality assessment process should be conducted to ensure that ESG implementation is based on the company’s particular needs and priorities, as determined by its activities. This will help the company to mitigate material risks.

Effective ESG design and implementation should be collaborative and cross-functional, with all areas of the company working towards a common overall objective. The input of subject-matter experts (internal and external) should also be considered in all matters contemplated by the company’s strategy and overall plan. Tracking and monitoring implementation efforts and preserving data integrity are also essential.

The legal and compliance team of a company will play a fundamental role in the successful development and implementation of an ESG programme. An ESG programme without a compliance element (including ethics) will be incomplete and ineffective. Remember that ESG is a management tool and good management depends on sound corporate governance – and the legal function is primarily responsible for the set-up and revision of governance systems.

As ESG is a relatively new concept and is evolving daily in many jurisdictions around the world, it is important that companies strive to keep up to date and adjust their guidelines and strategy based on new developments. Good ESG practices today will evolve and may not be acceptable in the future. Stay alert!

Co-Authored by : Edmond Grieger and Elias Jalife