By Miguel Ferreyra de Bone – Acrux Partners Ltd. | 6 June 2016
Latin America has experienced an evolution in the responsible and impact investing environment. Governments, companies and individuals are generating the changes needed to achieve sustainable and resilient economies.
Recent changes at a regulatory level and an improvement in the sophistication of the financial community are among the reasons why international investors are starting to pay more attention to this region when thinking about deploying responsible capital.
For many years, the fund administrators that were operating in the region have experienced some difficulties when integrating ESG into their portfolios due to a general lack of awareness of the benefits of this type of investments at a local level, together with missing regulation to support these activities. Now we are seeing that market players are moving towards a better understanding of the benefits of ESG integration, and how it can not only mitigate risks that could result in material losses and reputational damage, but more importantly add value and increase the selling price of the company at exit point.
Due to this transition to a more informed business community, where awareness on ESG factors and impact investing matters have risen, the international impact investing community is keeping LATAM in its radar.
According to the GIIN survey respondents, Latin America and the Caribbean are in third place in number of allocations after North America and Sub-Saharan Africa. The survey also shows that private debt is the most popular asset class and that investors in its majority are planning to “maintain or increase” its allocations.
Countries looking to integrate ESG factors into their policies
The Emerging Markets are a key area of focus for impact investors, hence governments all around the globe are starting to be more aware of the changes that need to be made in order to attract and retain this sort of capital.
Something very notable is the amount of collaboration between market players from different countries to create a better business environment for impact investing in the region. To promote ESG awareness and integration into the investment process, countries have started to address issues and strategies with a collective approach.
In the last 5 years alone, the creation of the Latin SIF , the Program for Responsible Investment, the Brazilian and Mexican Impact Investment Task Forces, the Impact Investing Task Force for Argentina, Paraguay and Uruguay, and the process initiated by Colombia and the Andean Region to launch their Task Forces, shows that the region understands the place that the impact investing international community has put it in.
The changes that we are experiencing in the Latin markets are being pushed from the bottom up and from the top down. From the bottom, millennials and segments of the population that are committed to a more responsible way of doing business are demanding changes in the way the corporate sector produces goods and services. From the top down regulators and governments are creating enabling environments to facilitate the flow of capital to this kind of investment. However, for an important segment of the business community, ESG and impact investing is still something to be learned and implemented.
Understanding the trajectory, experiences and lessons learned by other countries in the world; in the development of the responsible and impact investment market, is something that Latin America is taking advantage of. The ability to leap-frog and avoid trying to reinvent the wheel when speaking about sustainability is something that key market players are highlighting as crucial in order to achieve important milestones.
Change of directions: a new approach in energy
Policy makers are placing innovation at the top of their agendas and governments are putting a lot of effort into generating policies that create greater efficiency and promote sustainable growth, still Latin America has experienced an important dependency on the price of commodities and we have seen countries struggling since the last global economic downturn and consequent slump in prices.
Countries like Argentina, Colombia and Chile are redesigning their energy policies, making innovation and sustainability the key factor to trigger and sustain growth in this industry.
Countries are strongly committed to reducing green house emissions; improved and extended renewable energy legal frameworks, are being created by policy makers throughout the region to follow the global trends in this field. Given the current underdeveloped infrastructure and the high costs in the industry, some countries are providing local suppliers and manufacturers with tax and credit incentives to accelerate the transition to cleaner energy.
Miguel Ferreyra de Bone is the Head of US Operations and Business Development at Acrux Partners. Acrux is a global Environmental, Social, and Governance (ESG) advisory firm that focuses on how funds can integrate ESG into their investment practices, they also develop and coordinate Impact Investing opportunities in the LATAM region for their client funds. Additionally, Miguel engages in economic research with the Universidad del Salvador in Buenos Aires and contributes to Ámbito Financiero, the leading financial newspaper in Argentina, as an economist focused on Latin America.