Sustainability, the vaccine for Latin America and the Caribbean economies
A COVID-19 vaccine will keep people feeling healthy and safe, but we cannot forget to vaccinate our economies as well. Sustainability will be a key component to building back better in the region’s economic recovery.
How sustainable infrastructure can decide Peru’s future
Last March, Peru experienced extreme weather conditions in the north of the country. This resulted in numerous physical, economic and human losses with costs associated at over US$3 billion, or 0.5% of GDP.
Planning for reconstruction, the country found itself at a crossroads: it could focus solely on meeting immediate construction needs or rebuild with a long-term vision. The latter option, to adapt the new infrastructure to the uncertainty of weather conditions, represents an opportunity to incorporate sustainability in highways, bridges, water distribution and management systems, as well as to leverage public-private partnerships and rebuild Peru’s economy to compete in the global market.
The government of Pedro Pablo Kuczysnki has launched a reconstruction plan called “Reconstruction with Changes” which has two phases. The first seeks to invest up to US$3 million in immediate reconstruction and resettlement. The second, projected to last five years, focuses on the development of modern, climate-resilient public works that represent an additional investment of US$6 billion.
A private sector opportunity
A large part of infrastructure losses is absorbed by private markets, and for this reason the private sector has a lot to gain from reconstruction. For example, a new highway can allow products to reach their markets more quickly, lowering the cost of doing business for companies.
The private sector not only benefits from reconstruction. It could also be part of its development. Estimates from the World Economic Forum suggest that for every dollar of public capital that is mobilized to close the infrastructure gap, five dollars of private capital should be mobilized. However, financing alone is not enough.
Key tools for reconstruction
IDB Invest (formerly known as Inter-American Investment Corporation), the IDB Group’s private sector arm, has experiences in technical assistance that can serve as a reference for Peru. In Mexico’s Port of Manzanillo, we found ways to adapt the design of the port to unpredictable weather conditions. This included ensuring reforestation and measuring the port’s carbon emissions. We made sure that the terminal operators have the tools and training necessary to replicate the environmental assessments every year.
We also use the Envision methodology, developed by Harvard University’s Zofnass Program for Sustainable Infrastructure and the Sustainable Infrastructure Institute. The methodology focuses on quality of life, leadership, resource allocation, the natural world and climate, and risk. The tool has helped our clients measure sustainability, particularly during project planning and design phases.
Environmental and social safeguards promote minimum quality in infrastructure investments. In June 2014, during the review of a loan to a local cement plant, our environmental models predicted atypical rains in Asunción, Paraguay. Our environmental specialists needed a contingency plan. When flooding occurred, the plant mitigated damage although there were some construction delays. The project’s sponsor recognized the importance of the environmental safeguard measures and invested in additional water studies, new internal routes with barriers and protected storage facilities.
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Corporate governance safeguards and attention to integrity also strengthen infrastructure sustainability. Although Latin America is a middle income region, two-thirds of its countries fall in the bottom half of Transparency International’s “corruption perception index.” According to this organization, 26% of Peru’s population has been the victim of corruption. IDB Invest maintains the highest standards of integrity, and we are confident that with our support for the RCC we will reduce this rate.
Finally, investments in sustainable infrastructure can attract institutional investors. Investing in socially and environmentally responsible companies is increasingly considered a fiduciary responsibility and a means for increasing the value of company assets over the long term. We have witnessed the interest of such investors when we presented sustainable and bankable investments. The Reventazón hydroelectric dam in Costa Rica and the Campo Palomas and Colonia Arias wind farms in Uruguay have been pioneer projects in attracting financing from local institutional investors. In Peru, we seek to leverage local money and our capacity to advise public-private partnerships to attract more local stakeholders.
This is a critical moment, but Peru is well positioned to convert its losses into opportunities. Investments in sustainable infrastructure are the only guarantee for building a more inclusive, less vulnerable, and more competitive future in the 21st century.
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International Women’s Day: more than a day for women and men
Going beyond the day itself, International Women’s Day is an opportunity for all to commit to advancing gender equality and create real workplace inclusion. I challenge you to go one step further and make gender equality everyone’s business.
Gender equality is paramount for increased inclusion as well as business profitability arising from their increased labor force participation. As a result, the role of women in the 21st century economy will be one of the main issues discussed during the III CEO Summit of the Americas, held on April 12 and 13 in Lima, Peru.
One of the most pressing challenges for Latin America and the Caribbean continues to be how to close the workforce gender gap. The gender gap is present in all areas from junior to management positions. According to the Global Gender Gap Report, Latin America and Caribbean is one of the worst positioned regions in the world regarding female economic participation and opportunity, even though it is at the top in terms of female educational attainment right behind North America and Western Europe.
However, we can close this gap and enjoy the benefits of gender equality if the private sector in the region takes a leadership role. Some recent initiatives are already pointing in that direction. For example, Chile, Argentina, Peru and Panama have launched Gender Parity Initiatives. These public-private alliances aim to reduce salary differences between men and women and increase female labor participation with more representation in the top management. In Chile, 108 companies were enrolled in the Promociona Chile program to train female workers and improve their access to top positions at their companies.
In a study that IDB Invest recently published with EDGE, a gender certification entity for businesses, we highlighted companies with more women in leadership positions. The research shows that, out of the 11,000 companies surveyed, those managing gender equality with a certification have 22% female directors on their Boards compared to 9% at companies which do not. The analyses show that the certified companies in Latin America and the Caribbean implement policies such as flexible work jointly with practices such as women leadership programs.
Why do we value gender equality in the private sector?
In January 2018, McKinsey published the conclusions of a survey on gender, ethnic and cultural diversity in the workplace that linked gender diversity to higher revenues and stronger economic margins. Another regional analysis by McKinsey, which covered 345 companies in Latin America, concluded that the companies with higher female representation yielded returns on investment and profit margins were 44% and 47% higher, respectively.
To address the lack of gender diversity, some sceptics assume that women should solve the inequality themselves fighting on their own to achieve it or acting the way men do. Others are worried about a zero-sum game in which men fear that if women have more opportunities, men will have fewer.
At IDB Invest we launched a survey in which we asked our personnel if they thought that gender equality was important to maintain competitiveness in the 21st century. Both men and women responded 83% in favor of gender equality. Moreover, this year we were granted the “Assess” level EDGE certification. This shows our public commitment to gender equality and an inclusive work culture by men and women. In our portfolio of clients, three companies have already received the EDGE Certification. Regional governments and private sector clients are with us in this effort to set goals and measure progress through other certification entities in the region such as the UNDP. This is just the beginning, and we need to commit to do more. IDB Invest along with regional companies can speed up this progress if we start socializing changes in the workplace.
For example, as part of our action plan at IDB Invest, we have created four cross-department teams to promote changes in recruitment, promotions, salary gap and flexible work across the organization. We also see opportunities for top managers to mentor women, invest in female talent development and hire diverse teams. Management teams can encourage men to use their paternity leave, promote effectiveness more than physical presence at the office, and commit to gender diversity at event panels. These are a few examples of how to highlight women’s professional work and show that, when women are empowered, men are too. Upon analyzing data on business profitability and the creation of economic value, both men and women have a lot to win. The time to act is now.
Be part of the conversation
Discover more about the III CEO Summit of the Americas and be part of the conversation following #CumbreEmpresarialAméricas, that will take place on April, 12 and 13. Find out more here.
This article was originally published on El País in Spanish