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Mexico’s Updated Sovereign Sustainable Finance Reference Framework

On January 8, 2023, Mexico announced a significant update to its Sovereign Sustainable Finance Reference Framework through the Ministry of Finance and Public Credit (SHCP). This new framework strengthens regulations governing how the federal government will engage with international capital markets. It focuses on leveraging environmental, social, and sustainability-linked instruments. With a clear emphasis on transparency, taxonomy alignment, and impact reporting, the revised framework marks a pivotal step in Mexico’s sustainable financing landscape.

Key Elements of the Updated Framework

Replacement of the Original 2020 Version

The updated framework effectively replaces the original version published in 2020. It seeks to better align Mexico’s sustainable financing strategy with the National Development Plan (PND) for the years 2025–2030. Similar to its predecessor, it is designed to set forth the guidelines under which Mexico can issue various types of bonds, including green, social, sustainability, and sustainability-linked bonds. This version improves clarity on what qualifies as sustainable spending.

Integration of Mexican Sustainable Taxonomy

One of the most significant changes in this update is the full integration of the Mexican Sustainable Taxonomy criteria. This aims to prevent greenwashing and enhance comparability with international sustainable finance standards, an essential step for attracting both domestic and foreign investment.

Expanding Eligible Expenditures

The new framework broadens the categories of eligible expenditures, now grouped into four main areas:

1. Environmental Spending: Includes projects focused on climate change mitigation and adaptation, renewable energy, energy efficiency, clean transportation, and sustainable water and wastewater management. Notably, it emphasizes the importance of marine and coastal ecosystems such as mangroves and wetlands.

2. Social Spending: Encompasses projects aimed at providing access to essential services like health, education, housing, and food security, along with initiatives for poverty reduction, gender equality, and support for Indigenous communities.

3. Circular and Blue Economy Initiatives: For the first time, explicit categories have been added to cover sustainable fisheries, waste reduction, and resource efficiency.

4. Transition-related Expenditures: This category incorporates investments necessary for decarbonizing hard-to-abate sectors, as long as they meet the taxonomy’s established thresholds.

Governance and Accountability

Multi-stage Governance Process

The governance process for project selection and fund allocation is multi-stage. Led by SHCP, it involves coordination with relevant line ministries and public entities responsible for carrying out the projects. All proposed initiatives must demonstrate alignment with the PND 2025–2030, the 2030 Sustainable Development Goals (SDGs), and Mexico’s updated Nationally Determined Contribution (NDC 3.0), which will be showcased during COP30. Importantly, the framework permits funding to cover both new investments as well as refinancing of existing projects, following specified look-back periods.

Enhanced Reporting Obligations

The updated framework establishes stringent reporting requirements. Mexico is committed to publishing annual allocation and impact reports for every sustainable finance instrument it engages with. Allocation reports will enumerate how proceeds are distributed across categories, programs, and geographical regions, while impact reports are expected to provide qualitative and quantitative indicators whenever feasible.

Key Performance Indicators

The framework outlines critical environmental metrics such as:

• Greenhouse gas emissions reduced or avoided.
• Renewable energy capacity installed.
• Energy savings realized.
• Hectares of restored ecosystems.
• Volumes of waste diverted or recycled.

On the social side, indicators may include:

• Number of beneficiaries reaching essential services.
• Affordable housing units supported.
• Access to basic services in underserved regions.

Where direct measurement isn’t possible, the framework allows for the use of proxy indicators and qualitative assessments, provided methodologies are disclosed transparently.

Achievements and International Standards

The updated framework has received a prestigious SQS1 score in a Second Party Opinion from Moody’s. This score confirms its alignment with international benchmarks, such as the Green Bond Principles and Social Bond Principles established by the International Capital Market Association. It also adheres to frameworks endorsed by various loan market associations.

Role of External Observers

To maintain accountability, the UN Development Program will act as an independent observer, providing nonbinding opinions on both the framework and the annual reports. In Mexico, the Supreme Audit Institution (ASF) is tasked with scrutinizing the alignment between reported expenditures and the established eligibility criteria, thereby adding another layer of public accountability.

How AI legalese decoder Can Help

In a landscape as intricate as sustainable finance, comprehending legal frameworks can be challenging. AI legalese decoder can serve as an invaluable resource, simplifying the complex legalese found within Mexico’s updated Sovereign Sustainable Finance Reference Framework. By providing plain language explanations and breaking down complex regulations, AI legalese decoder enables stakeholders—including government officials, investors, and the public—to better understand the implications of these legal documents.

In summary, Mexico’s updated framework marks a transformative step towards sustainable financing, further augmented by tools like AI legalese decoder that streamline comprehension and compliance in a rapidly evolving market.

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