In the same week, three oil giants – Chevron, Exxon and Shell – received a strong and clear message from shareholders and authorities: they must wake up and take sustainable goals and climate risks seriously. The same message is being sent by the National Commission of the Retirement Savings System (Consar) to the Retirement Savings Fund Administrators (Afores).
As of January 2022, Afores will have to incorporate sustainable criteria in their methodologies and prioritize environmental, social, and governance (ESG) investments in their portfolios, as well as push within the public companies in which they are represented to comply with sustainable principles. “There have to be robust ESG policies. It is dangerous if (the Afores) put something lax in their methodology,” said Octavio Ballinas, financial vice president of Consar. “We get to be the bad guy in the movie.”
The road, as we see it in the oil industry, will be uphill. A not minor sign that reflects the challenge faced by the largest investors in the country in this change of thinking, is that only 4 of the 11 Afores that make up the system are signatories of the Principles for Responsible Investment, the United Nations guidelines that define a strategy and practice that incorporates ESG factors in investment decisions and asset management.
Among the Afores that have committed to these guidelines are Afore Banorte XXI, Citibanamex, Sura, and Profuturo. These same firms are members of the Green Finance Advisory Council, a body that integrates the public and private sectors to develop a sustainable financial market. The work of the rest of the Afores is still an unknown for their savers and regulators.
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Sustainability in many ‘environmental funds’ is far from sustainable
“There are a couple that had advanced on their own initiative, but the rest of the sector does not have (ESG criteria),” said Ballinas. The official even points out that the new regulation was not without controversy. The Afores “did not want us to impose these obligations on them and that is why the circular has a transitory provision (that gives them time to incorporate ESG factors in 2022).”
However, the Mexican Association of Afores insists that the guild is advancing “very fast” in adopting these criteria, although it recognizes that there is a certain disparity. “The capacities are different. There are Afores that have much more specific trained personnel,” says Alvaro Melendez, Amafore’s technical vice-president.
To understand how the regulator could evaluate these factors as of 2022, here is a hypothetical example outlined by the Consar executive: if an Afore invests in a passive instrument (that replicates the behavior of an index) called ESG, but does not have a methodology and does not use evaluations from an independent firm on sustainable assets, the Afore would be sanctioned.
The rise of green bonds
“The ESG issue cannot go for passive investment. We are going to set the standard. If I analyze your methodology and I see that it is a blunder, I will fine you,” warned Ballinas. The minimum fines start at 87,000 pesos per portfolio (there are 10 portfolios per Afore), according to Consar data.
The truth is that since the publication of the regulatory change, the Amafore opted to create an ASG investment subcommittee. Currently, the association that groups nine Afores establishes minimum standards for sustainable investments, homologates tools and methodologies, and outlines a work path to adopt ESG criteria.
“We have tried to self-regulate beyond what the regulation requires and try to have the best international practices on the subject”, assures Melendez. The first goal that Consar envisions for 2024 is that close to a third of the global capital portfolio -which represents 40% of the total portfolio- of the Afores’ investment companies should already have ESG criteria. “It is something we think will happen organically. We are not thinking of setting a limit,” said Ballinas.
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