Community control

Could growing investor interest in ESG change the prior consultation debate?

Investors in Latin America are increasingly concerned about environmental, social and governance (ESG) issues, but consideration and measurement of these matters are not always straight-forward as we have learned from the process of prior consultation.

Before any large infrastructure project, most Latin American countries already require governments and companies to conduct prior consultations with local communities who are entitled to protect their land and natural resources. This process was first established by the International Labour Organisation (“ILO”) Conventions of 1989, then, in 2007, the UN passed the Declaration on the Rights of Indigenous Peoples which defined the individual and collective rights of indigenous peoples, including the ownership and protection of their intellectual and cultural property.

A constitutional lawyer in Colombia commented, “Colombia’s constitutional court has recognised the right to prior consultation in multiple judgements. As such, prior consultation is not just a simple mechanism for citizen participation, it is a fundamental right recognised by the Colombian legal system and by international human rights treaties such as the United Nations Declaration of the Rights of Indigenous Peoples.”

Despite the apparent maturity of the prior consultation process, no one likes them!

Indigenous communities are in favour of an even greater devolution of powers which would grant them more decision-making control. Civil society and indigenous communities in Brazil recently published a letter looking to strengthen prior consultation rights after the Federation of Industries of the State of Pará (“FIEPA”) sent a letter to President Jair Bolsonaro requesting him to withdraw Brazil from the Conventions, arguing that it caused legal uncertainty over economic projects.

There are critics on the other side of the table too, one such lawyer explained, “Prior consultations in many Latin American countries are unique in that massive amounts of economic activity are subject to rules that are not well defined. This results in a complex and costly process which is open to abuse from both sides.”

“Prior consultations in many Latin American countries are unique in that massive amounts of economic activity are subject to rules that are not well defined.”

Constitutional lawyer, Colombia

Investor sentiment suggests that the balance of power around prior consultations will continue to shift towards the indigenous communities.

Demand for sustainable investment and the integration of ESG into investment decision-making has created opportunities for many Latin America countries that have a tradition of tying social programmes to subsidies like Argentina, Brazil, Chile, Colombia, Mexico and Peru. This, coupled with US and EU companies increasingly scrutinising their supply chains in the region has led to greater demand for stricter ESG regulation from investors and governments alike.

“Prior Consultations are here to stay, and this is a good thing. The challenge is to regulate them in such a way that investors, companies and local communities have faith in the process and the result.”

Civil society representative, Colombia

Local companies, however, are finding these new requirements more difficult to implement than their developed-market competitors, as they struggle to incorporate ESG factors into their business plans, corporate structure and product strategy.

“Prior consultations are here to stay,” explained a civil society representative in Colombia adding, “and this is a good thing. The challenge is to regulate them in such a way that investors, companies and local communities have faith in the process and the result.”

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