First Sustainable Investment Fund in MexicoBy Alessa Flores | Thu, 07/16/2020 - 15:05
Banco Santander launched the first equity investment fund with sustainable criteria "SAM-ESG" in Mexico, according to a note from Milenio News. This fund will incorporate non-financial elements in its management and will invest only in companies that meet environmental criteria to ensure a socially responsible investment strategy and contribution in the country. On an official statement, Santander assured that this new investment scheme adopts a more comprehensive vision with elements of social, environmental and corporate governance impact. Santander's sustainable investment fund will be available to individuals and companies, without a minimum investment, as of July 23, 2020, in the Mexican market.
Previously, investment projects were chosen based on their performance. Today, financial factors are not the only ones used to measure the success of a sustainable investment, according to Fidelity Active Investor. This new scheme seeks to measure the project’s social impact through ESG indicators that include the environment, give special attention to social issues and maintain governance quality. This means investments are driven toward companies that encourage clean practices and the use of renewable and sustainable energy, ensure healthy working conditions and lifestyles, address wealth inequality and other social issues and that demonstrate governance quality with strong corporate governance systems having policies and principles that address potential conflicts of interest among stakeholders.
It is calculated there are 9,000 companies worldwide under the ESG scheme of which 3,500 are located in North America and more than 350 in Latin America, according to Refinitiv data. But beyond the numbers, what kind of impact can ESG factors have on returns? Vladimir Demine, Executive Director and Portfolio Manager at International Equity Team in Morgan Stanley believes “investing in companies that lead in environmental, social and governance best practices is no longer niche—it is one of the strongest ways to help ensure long-term, sustainable returns.” In addition, Demine says growth of professionally managed money that incorporates ESG criteria reached US $11.6 trillion only in the US during 2018, a 44 percent surge since 2016, according to a recent US SIF Foundation report.
In addition to investment criteria, Santander will offer different strategies with different levels of development and sophistication for its clients in Mexico. SRI products can be fixed to one or several of these strategies. Among them are exclusions on investments for controversial activities, selection based on international standards, focus on best ESG assets, the possibility of investing in issues or assets related to the development of sustainability or specific social problems and, finally, investments that have a proven social impact. In Spain, Banco Santander, through Santander Asset Management, was a pioneer when it launched the first SRI investment fund in 1955.
It is estimated that companies typically lose 70 to 80 percent of their assets when assets change generations, according to EY data. Nonetheless, the future of sustainable investment is promising. An analysis prepared by the consulting firm EY mentions that demand for sustainable investment is driven, in part, by millennials who prefer to invest according to their personal values. Moreover, millennials are poised to receive more than US$30 trillion of inheritable wealth and sustainable investment will continue to increase in demand. As a result, fund managers are increasingly allocating resources to product development to capture this emerging customer segment, EY explained.
Finally, EY revealed that millennials will require more active involvement in their own investments, as they want to be more active in controlling their own destiny. Moreover, millennials are going to demand more active social approaches, which will result in activist tendencies continuing to shape the future of investment schemes.