Sustainable investment is about creating economic value through environmental awareness, respect for human rights, and good corporate governance. By integrating Environmental, Social and Corporate Governance (ESG) criteria, and those related to climate change into the investment process, it seeks to promote better decision-making, achieving a better risk-return ratio. It thus helps investors make more informed and ethical decisions, while generating a positive impact on society and the environment, contributing to the creation of a more sustainable and equitable world.
Latin America is at a historic moment in the construction of the sustainable investment ecosystem, due to two major trends:
Pension Fund Managers in the Latin American region are mostly aware of their responsibility for long-term investment for the benefit of their members, and understand that incorporating ESG factors into the investment process helps allocate capital to well-governed companies working to create sustainable economies, consistent with the global understanding that fiduciary duty considers these factors.
The growing adoption of drivers for boosting ESG, such as public-private partnerships in sustainable finance, the development of “green taxonomies” (which enable differentiating and classifying instruments of this type) at the local level, and the development of regulations and/or initiatives that enable establishing the terms, conditions, and incentives for the proper development of ESG (for example, the rules that require incorporating ESG factors into the investment and risk management policies of Pension Fund Managers).
The countries currently most advanced in the integration of ESG factors into their pension systems are Brazil, Chile, Mexico, Colombia and Peru. Despite all the progress made, many improvements are still pending for the full development of ESG in the financial system, particularly in the pension fund sector, and the Latin American Pension Fund Managers are committed to continuing on this path. These include, for example, establishing clear and standardized global regulations for promoting the incorporation of ESG factors in the transactions and investment strategies of all financial institutions, providing training programs for all financial institutions so they can understand, adopt and effectively implement ESG practices, continuing to encourage issuers to report ESG-related data aligned with global methodologies, in a standardized manner, while achieving greater standardization of available data and methods for the analysis of assets related to ESG criteria, avoiding “greenwashing”.
