How ESG Investments Have Evolved in Recent Years

Better environmental conditions, a more humanistic view on inequality in society, as well as a healthier working environment, are issues that should definitely be supported by the allocation of financial resources to be viable.

The good news is that a significant dynamism of investments with this approach is being observed. The US Sustainable and Impact Investing Trends 2020 report reflects that sustainable investments in this country grew by 42%, from $12 trillion in 2018 to $17.1 trillion in 2020.

The figures indicate that these investments already account for 33% of total professionally managed assets in that country. Since 1995 when the US SIF Foundation began measuring these assets, it estimates that they have grown at a compound annual rate of 14%, with growth becoming more pronounced since 2012.

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Which of the three categories has increased more in the last two years

The environmental category has grown the most in the last two years by 57%, followed by the social category, which increased by 49% in this period, and an increase of 48% in the corporate governance category.

In this line, The Wall Street Journal recently published in an article that assets in investment funds with an environmental focus reached $2 trillion globally, more than tripling in three years. It is mentioned that more than $5 trillion are being allocated every day for bond issues and credits with green initiatives. Similarly, the two largest banks in the United States have committed to allocating $4 trillion to climate-oriented initiatives over the next decade.

Generational changes are playing a very important role in the dynamism of the market for these vehicles. According to the U.S. Trust Insights on Wealth and Worth (2017) study, Millennials, followed by Generation X, are more interested in selecting financial instruments related to impact investments that reflect their values of fighting inequality, inclusion, environmental stewardship and better governance standards.

This aspect is fundamental for institutional investors such as pension funds, which based on the Principles for Responsible Investment (PRI) are actively participating in the incorporation of the ESG model in the design of their investment strategies, seeking to reduce risks and meet the expectations of their clients.

Although Mexico is lagging behind other countries, to date, organizations and institutions have been formed that seek to generate positive environmental impacts and thus develop a sustainable financial market in the country. For example, in 2016 a Green Finance Advisory Council (CCFV) and the Climate Finance Advisory Council (CCFC) have been integrated.

According to CCFV reports, despite the challenges of 2020, 11 green, social or sustainable bond issues were placed in the stock market in our country, a figure that represented more than double that of the previous year. Of these issues, five were green, five were sustainable and one was a social gender bond. The latter stands out, as it sets a precedent for being the first to seek to promote the economic autonomy of women in the agricultural sector, providing them with productive credits for working capital.

So far in 2021, Fibra Storage joined Prologis to launch a public offering of green bonds for $75 million ($1.5 billion pesos), making it the second Fibra to place green debt. Similarly, in April Scotiabank issued a structured note with ESG factors; OMA became the first airport operator to issue green bonds; CADU also issued a note based on sustainable housing construction, and Valmex launched a new fund with a sustainable focus.

However, we cannot overlook the fact that we have important ESG challenges to consider. Firstly, there is still no obligation to report information on the actions taken by issuers to comply with these standards. The second challenge is the cost of all the implementation and disclosure, and the third is that it is very important to audit these initiatives to validate whether there is actually a change in the processes of the organizations that provide a real benefit in the world, in the dimensions of the model.

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(Featured image by Aaron Burden via Unsplash)

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First published in EL FINANCIERO, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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