The Power of Purpose: Sustainable Investing in Mexico

In finance, sustainability acknowledges the link between financial success and responsible business practices. For investors, sustainability means incorporating environmental, social, and governance (ESG) factors into decision-making processes, recognizing that companies thriving in the long term are those that navigate challenges while having a positive environmental and social impact, according to experts.

“Transforming topics and metrics into financial discussions poses a significant challenge for companies as it entails not only recognizing these aspects as potential financial risks, but also necessitates the establishment of robust governance structures and processes,” says Mariuz Calvet, Head of Sustainable Finance MX & Latin America, HSBC. Some companies have trouble relating the effort of ESG reporting and strategies to a return of investment (ROI), she adds, but for investment banks, a company that has a clear ESG strategy is more attractive than those that do not have one.  

In recent years, Mexico has emerged as a promising land for sustainable investing, drawing attention from investors seeking environmentally and socially responsible opportunities. The Mexican government witnessed a 419% increase in green bond issuance from 2020 to 2022, reaching MX$122.01 billion (US$6.7 billion) by August 2023. This thematic bond surge has positioned the country at the forefront of sustainable financing leadership in Latin America, as noted by Gabriel Yorio, Deputy Minister, SHCP.

However, Mexico and Latin America are still lagging in terms of ESG regulations. In this scenario, companies that have a clear strategy for the governance part of ESG are more likely to be successful, says Salomon Amkie, Head of Specialized Industries and Structured Finance, Citi. “Success hinges on adopting a top-down approach where senior management wholeheartedly embraces ESG strategies, ensuring a cascading effect throughout the organization — from the financial team to commercial aspects and cultural dimensions,” he says. “This comprehensive integration is sought after by investors seeking a holistic commitment to ESG principles.”

Businesses must disclose this information so banks and other companies know how they are doing in terms of sustainability. However, they must be careful of oversharing. Companies that do not have a clear goal have a tendency to overreport and obscure the relevant information the investors and stakeholders need, says Michiel van der Lof, Global Corporate Reporting Services Leader, EY. “A global standard, like the ISSB, is needed to help companies know what type of information they must disclose, so stakeholders are aware of where they stand and where they can go with that company,” he says. 

Having specific parameters for each industry is key so companies avoid overreporting, says Alejandra Espinosa, Head of Product ESG, CIAL Dun & Bradstreet México. CIAL Dun & Bradstreet, for example, focuses on addressing information that might not be commonly disclosed under global ESG standards due to a lack of awareness about its relevance. “It is imperative that such undisclosed information is reported, especially for companies under watchlists,” says Espinosa.

Beyond reporting, banks and other companies must see real actions, strategies, and goals within the sector. This comprehensive approach is pivotal for attracting sustainability-focused investments, highlighted van der Lof. The challenge lies in updating these strategies to ensure the necessary investments are secured. A credible transition plan is also necessary and must include specific metrics, indicators, short-term targets, and actual plans to attract sustainability-linked loans, says Calvet. 

Sustainability in investing is more than a trend; it signifies a lasting transformation in the way banks and investors evaluate and engage with companies. Businesses integrating ethical, social, and environmental considerations are not only resilient but set for success in a changing global landscape.