Latin America is a unique region when it comes to climate change. According to a report by the consulting firm McKinsey, the region has abundant reserves of minerals that are key to the energy transition (led by lithium and copper), great potential for generating renewable energy as well as for producing liquid biofuels, forests (the region accounts for 34% of the world’s potential for mitigating the effects of climate change through reforestation), and an agriculture, livestock, and fisheries sector with extensive investment opportunities in sustainable production. 

McKinsey estimates that, to achieve its net-zero emissions goals by 2050, Latin America will require investments in the range of US$700,000 million annually. The region also offers investment opportunities in reforestation totaling about US$150,000 million, in renewable energy totaling US$250,000 million, and in agriculture, livestock, and fisheries totaling US$200,000 million.

Latin America is also one of the regions most vulnerable to the risks of climate change. According to McKinsey, 13 of the 50 countries most vulnerable to climate-related shocks are located in the region, which could push nearly 6 million people into poverty. The loss of biodiversity, meanwhile, could affect agricultural production and food security in the region.

In this environment, the financial sector faces significant challenges and opportunities. Many regulators—including Chile’s Financial Market Commission, Brazil’s Central Bank and National Monetary Council, and Mexico’s Ministry of Finance and Public Credit—have issued measures to establish guidelines and require the disclosure of actions that publicly traded companies are taking regarding climate change.

This is directly related to the financial sector’s ability to channel funding toward the investments needed for climate change-related projects, through the development of instruments such as green bonds, which more than doubled in less than two years, reaching US$30,200 million in 2021.

At the same time, the financial sector will have to face the challenge of assessing the risks posed by climate change to companies and their physical assets, and of developing and monitoring key performance indicators in areas related to decarbonization and the sustainability of the investments and companies it finances through these instruments.

You can view the full report here