Symbolic Signaling or Substantive Shifts: A Firm-Level Assessment of Corporate Engagement with Mexico’s Pilot Emissions Trading System from 2021-2023

Abstract

In 2018, Mexico became the first nation in Latin America and the Caribbean to adopt an emissions trading system (ETS). The policy was set to begin with a three-year pilot phase between 2020 and 2023 before transitioning into full-scale implementation. However, after initial testing started in 2020, 2021, and again in 2023, the pilot’s status became uncertain as delays sputtered the program. While typical analyses of ETS policies assess their impacts on direct emissions outcomes, this study investigates whether suspected firms involved in the pilot- ETS responded to the policy through symbolic signaling, such as low-cost target setting and strategic alignment, or substantive action, such as commitments to improved emissions control and environmental investments. Given the policy's ambiguity and time frame, this novel evaluative framework attempts to capture relevant early-stage corporate adaptation behavior. Through a multi-dimensional study using comparative and cross-sectional trend analysis of relevant proxy ESG metric scores for 14 Mexican companies from 2021 to 2023, results show that suspected pilot firms were more likely to engage in signaling behaviors than non- participants. These findings suggest that the Mexican pilot-ETS’s implementation gaps and design flaws led to strategic hedging by firms. This work provides lessons for Mexican policymakers and other developing nations on the importance of long-term policy credibility in promoting effective climate action.