ESG Risk Radar – LatAm Utilities

Latin American Utilities are exposed to various risks, including capital discipline, regulatory changes and political influence, changes in rainfall patterns and environmental impacts and risks associated with dams.

Latin American Utilities have a significant opportunity to increase their share of renewable energy production and distribution. Hydro energy already makes up a significant percentage of the energy mix (approximately 60% in Brazil) and there is significant scope for expansion of solar and wind as well.

The main ESG catalysts are the pace of the energy transition and the impact of future regulatory changes. We believe that there may be unintended consequences of too-rapid of a shift to solar and wind energy, given the unsolved intermittency challenges of renewables, which would increase the need for thermal energy (especially after the expansion of gas production in the offshore pre-salt region) and therefore drive up prices. Long-term regulatory changes on pricing and tariffs remain a constant catalyst for the sector too.

We place the Latin American Utilities sector within our ESG Risk Group Two category, which implies the sector is in a sustainability transition. The sector is moving into the renewable energy domain through expansion of investments and improved efficiencies.