Fundamental rights of legal entities: an unresolved matter

Under certain circumstances, the amparo proceeding in Mexico has been used as a mechanism by which legal entities may defend themselves against acts of authority that they consider to violate a healthy environment and cultural rights. However, in April 2021, the Eighteenth Collegiate Court in Mexico City issued three criteria in which it held that legal entities cannot defend these rights in court, since the Mexican Constitution only recognizes the fundamental rights of legal entities that are strictly necessary for the realization of their corporate purposes; therefore, such entities do not enjoy the human rights that presuppose intrinsic or natural characteristics of the human being. Based on that premise, the Collegiate Court concluded that the rights to a healthy environment2 and to culture correspond only to the human person, because only the latter can enjoy them. These precedents derive from an amparo proceeding brought by the Mexican Academy of Environmental Law (AMDA) against the construction of Line 7 of the Mexico City Metrobús, which runs along the historic Paseo de la Reforma. That project apparently began without holding the corresponding authorizations to safeguard the historic monuments and Chapultepec Forest, which is why the Eighth District Judge in Administrative Matters in Mexico City decided to grant the amparo to the plaintiff. The Eighteenth Collegiate Court reversed the District Judge's ruling, ordering the dismissal of the proceeding for lack of legal or legitimate interest on the part of the plaintiff. In the decision issued in the amparo on review, the Collegiate Court concluded that the AMDA, as a legal entity, was not directly affected by a transgression to the environment or to cultural rights.4 The Court reached this conclusion despite the fact that the corporate purpose of the AMDA (included in its articles of incorporation) specifically includes the promotion of ecological improvement and the carrying out of actions for the protection of natural resources and of the Nation's cultural heritage. The ruling from which these criteria derive was issued by a majority of two votes of the three magistrates who make up the Collegiate Court. In a dissenting vote, one of the magistrates held that the AMDA had a legitimate interest in resorting to amparo to protect social rights, as these are rights related to the purpose for which the association was legally constituted. The precedents were issued in such broad terms that they are applicable to all legal entities, not only to civil associations, which is the corporate form adopted by the AMDA. The position of the Eighteenth Collegiate Court appears problematic because it affects the possibility for individuals to join efforts and resources through the incorporation of a legal entity for any purpose other than an economic one, since, if they do so, that purpose might not be protected by the laws. It would seem that, in the Court's view, a legal entity cannot legitimately pursue the promotion of education, of a healthy environment, or of the protection of cultural heritage, since the only rights that will be recognized and protected for it are the individual fundamental rights of property, due process, access to justice, etc., but not social or collective rights. The foregoing could result in those legal entities that incorporate and promote environmental, social, and corporate governance (ESG) policies and initiatives possibly not being entitled to safeguard their interests and objectives before the courts. Behind the precedents issued by the Eighteenth Collegiate Court, there seems to underlie the idea that legal entities, and above all commercial companies, pursue a limited purpose, which is predominantly economic or of commercial speculation and, therefore, they only have as a responsibility to generate value for their shareholders. This is another problematic aspect of the Court's criterion, since this conception corresponds to the theory known as "shareholder supremacy." According to that theory, frequently attributed to the economist Milton Friedman, who published a famous op-ed in the New York Times in 1970, companies exist principally or exclusively to generate profits for shareholders. However, this theory has had fewer followers in recent times. According to more modern theories that incorporate the social responsibility of companies (including the one commonly called "stakeholder theory"), the directors and officers of companies should consider the interests of their various stakeholder groups when making corporate decisions, weighing the consequences these may have not only on shareholders, but also on employees, creditors, customers, suppliers, and the communities where they operate.5 Many academics and business leaders who support this point of view maintain that incorporating this comprehensive approach is, in fact, the only way to create long-term value for shareholders. The adoption of these theories allows a company to pursue not only the economic benefit of its shareholders, but also of its employees, the improvement of the conditions of communities, and the preservation of the environment, among other objectives. Now, for a legal entity to be able to effectively pursue those objectives, it is important that it be recognized as the holder of the corresponding rights and that it be able to defend them in court. For example, it would be very reasonable for a company dedicated to the generation of wind energy to pursue, as part of its corporate purpose, the development and operation of wind farms with the aim of creating value for its shareholders and, at the same time, to commit to supporting the country's transition to clean energy in order to protect the environment. As long as the company is not recognized as having a legitimate interest for the right to a healthy environment to be protected and the possibility of resorting to court to defend it, the pursuit of this non-economic objective could potentially be limited under this opinion of the majority of the magistrates of the Eighteenth Collegiate Court. Taking into account the crucial role of the private sector in contributing to sustainable development, it is expected that more and more companies will incorporate ESG (Environmental, Social, and Corporate Governance) criteria into their business strategy. This trend will continue to be fueled by the growing interest of investors, fund managers, regulators, employees, consumers, and other stakeholders when deciding whether to hire a company and acquire its products or services. Mexican courts, authorities, and regulators will have to be part of this conversation and support it through public policies. Therefore, it is to be expected that this debate on the fundamental rights of legal entities will gain strength in the coming years. At Von Wobeser y Sierra, S.C., we will be pleased to share our experience in the legal matters related to this article or any related topic, as well as our vision with a multidisciplinary ESG (Environmental, Social, and Corporate Governance) perspective. For further information on the subject of this note, please contact our experts: Adrián Magallanes, Partner and Co-leader of the Arbitration and Litigation Practices: +52 (55) 5258-1077 | amagallanes@vwys.com.mx Rodrigo Barradas, Associate: +52 (55) 5258-1077 | rbarradas@vwys.com.mx

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