Mexico City / 18.09.2024 00:55:23
A few months ago, I commented in this space about the growing importance that the adoption of ESG (environmental, social and governance) criteria has gained in Mexico in recent years. At a regional level, the story is no different and a new initiative is currently being prepared: Dialogues for Climate Latam.
So far, some of the main initiatives already underway in Latin America are the Latin American Alliance for Sustainable Investments (ALAS20), the Green Bond Transparency Platform, promoted by the Inter-American Development Bank (IDB), and the LatinSIF network. The intention, in all cases, is to encourage competition between companies and funds to integrate sustainable practices, as well as promote the transparency of information relevant to the adoption of these types of criteria.
Often, when talking about ESG, people think exclusively about the environmental benefits that they can bring. While this is a priority objective, in the case of pension funds (in Mexico, the Retirement Fund Administrators or Afores), savers are generally more concerned (and rightly so) about guaranteeing the most profitable investments possible.
My view is that these two priorities are not only not in conflict, but are consubstantial, meaning that to the extent that a company or investment adopts better ESG criteria, it will also be more profitable. Don’t take my word for it, there is a growing body of knowledge to support this hypothesis. Morningstar’s (2020) analysis of the performance of sustainable funds highlights that they outperform traditional funds in periods of volatility, while Oxford’s Smith School of Enterprise and the Environment (2015) found that companies with high ESG standards are more likely to deliver better risk-adjusted returns.
It is within this framework that a new regional initiative has recently begun to be drawn up: Climate Dialogues Latam. Driven by funds from Mexico, Chile, Colombia and Peru, the initiative aims to pool knowledge and criteria to promote decarbonisation in Latin America. To do so, the funds involved will measure emissions, develop carbonisation plans and strengthen corporate governance around climate change.
Regardless of the environmental benefit this represents for the region as a whole, savers and investors in these funds can also expect greater protection of their investments in the long term, as well as diversification into sustainable sectors. Furthermore, with increasing regulatory pressure and changes in global policies towards sustainability, funds that do not integrate these criteria could face future challenges, while those that do will be better positioned to capitalize on investment opportunities in the transition to a greener economy.
Positive alpha. Good news for Afores savers in Mexico. According to Consar, despite the financial volatility of the last few weeks, the Afores reported historic capital gains, reaching more than 231 billion pesos at the end of August.
