SRI in Latin America: Early Stages

(3BL Media and Just Means) - The financial world of socially responsible investing (SRI) is gaining support in Latin America. Governments, banks and investors are beginning to understand the importance of shifting assets into activities which support the triple bottom line. Sustainalytics, a sustainability research and analysis firm, recently published Inversión Responsabley Sostenible, a report that describes the context, growth and opportunity for SRI in Latin America, dividing it into three levels of involvement: Brazil as the first group, Chile, Colombia, Perú and México as the second, and the remaining countries in the third.

Alejandro Navarro, Responsible Investment Associate of Sustainalytics, explains:

“SRI is in its inception in Latin America, and you can split activity into two main areas. Brazil has a long history in SRI. Mexico, Colombia and Peru have sustainability indexes and Chile is working on one. Sustainability isn’t questioned and the potential for SRI is huge, but the business case for ESG (environmental social governance) isn’t totally understood yet.”

Brazil continues to lead the way in SRI with a carbon market, PRI network and a corporate governance list called Novo Mercado.

“Only five companies made the cut for transparency in corporate governance for Novo Mercado. But the whole conversation picked up and made a big impact with international investors. The fear was that companies on the Novo Mercado listing would be treated as minority investors, but they made the business case for corporate governance practices. Novo Mercado has made a huge impact and allowed for some capital to begin to consider ESG factors,” says Navarro.

Currently, only 1% of the total number of assets in Latin America are diverted into SRI funds, but activity,  is picking up. In Colombia, for example, corporations have taken the conversation very seriously, pulling investors from Europe and North America to help build credibility and value. They hope to build SRI as a trend which may convince Colombian investors to consider it. However, they haven’t yet completely bought into the need. Inversión Responsabley Sostenible, outlines potential strategies for how SRI can grow in Latin America, starting with traditional institutions and investors.

Navarro advocates that the success of the movement can’t be measured on the amount of assets to funds, but must include the number of large players committed to the conversation: large players, like the Bank of Brazil and the Colombian Securities Exchange.

“The conversation is more about mainstream investors converting to ESG and expanding their portfolios. It won’t be a separate sector. The goal is to build awareness within financial institutions, to highlight the opportunity for investment. They are not going to solve environmental and social problems, but make them evident,” says Navarro.

Associates from Sustainalytics are working with partners to educate investors and financial institutions in Latin America about how to consider ESG and build internal buy-in for SRI. They know that their biggest challenge will be to convince investors of the business case and to demonstrate that SRI funds do create impact.

“We are working on a methodology to measure SRI in the region,” says Navarro.  “Although no one has the answer yet, we know we need to measure impact.”

If global trends are any indication, when measurement standards are established and accepted in Latin America, SRI in Latin America should really pick up speed.