The law of the jungle

Latin America's courts are getting tougher on environmental laws.

Environmental concerns are causing investors and lenders, especially in Europe, to pause for thought when considering the risks associated with extractive industries in Latin America. Readers will recall our recent discussion of the withdrawal of several European banks from financing the trade of oil from Ecuador’s Amazon basin.

Behind this, there is growing public awareness of the impacts of climate change, air and water pollution, deforestation and the loss of biodiversity throughout Latin America and people increasingly want their money to be invested sustainably.

A recent report by the Inter-American Development Bank (IDB), entitled Environmental Governance Indicators for Latin America and the Caribbean, evaluated the institutions and rules that regulate environmental protection across 10 Latin American countries. The report found that all governments had incorporated environmental legislation but that there were severe gaps in implementation.

It should come as welcome news then that Brazilian mining giant, Vale, has been hit with USD 7 billion in damages over the 2019 collapse of a mining waste dam that killed 270 people and polluted a large area close to Brumadinho, including the Paraopeba river, which supplies water to one third of the Greater Belo Horizonte region. According to the local government of Minas Gerais, the state where the disaster took place, this was the largest damages agreement ever recorded in Latin America. Brazilian prosecutors also charged 16 people, including Vale’s former president Fabio Schvartsman, with intentional homicide and environmental crimes.

This was not the first time that Vale had suffered a dam collapse with devastating consequences. In 2015, just three years and two months earlier, another Vale tailings dam failed at the Samarco mine in the district of Mariana, killing 19 people and flooding 39 towns. The extent of the damage caused by the Mariana dam collapse makes it Brazil’s largest environmental disaster ever recorded with pollutants spread along 668 kilometres of watercourses. So far, USD 2.1 billion of reparations and remediation work have been paid but various legal actions are still ongoing.

Vale has now been blacklisted by large European investors.

Although the regulatory landscape around environmental protection in Latin America is patchy, we believe there is a trend emerging of new laws and regulations that are being enforced with greater rigour. The days when global corporations could take advantage of lax environmental standards to cut corners are over.

Environmental risks may frequently be categorised as low probability, high severity but we see the severity factor increasing and mitigating such an increase in risk is not straight forward in Latin America with such a diversity of ecosystems, cultures, politics, laws and regulations.

 

 

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