Responsible investing in different cultural contexts 2


(Second of four parts)

Last week, we began with an investigation of how different geographies are engaged in Responsible Investment and Sustainable Finance practice. We kicked off with Europe and North America and today we continue with this series, focusing on Latin America before moving on to Africa and then ending with Asia Pacific. Reiterating an earlier caveat, we cannot generalize how an entire nation or population behaves and simply try our best to spot some cultural trends that stand out as we recognize that society plays a role in shaping Responsible Investment (RI) practices.

Latin America is seeing tremendous growth and boasts highly developed stock markets such as Mexico’s BMV, Brazil’s B3, the Chilean Santiago Stock Exchange, and the Colombian Stock Exchange. However, the region is not without its problems. Argentina (which nationalized its local pension funds in 2008) and Venezuela experience a lack of investor confidence due to their economic and political instability, producing a less favorable investment environment in general and less developed sustainable finance markets, in particular.

Mexico is one of the largest economies in the world and yet its sustainability investing market is very nascent, with the first “Green Funds” launched only in 2006. But unlike European funds which target the integration of sustainability in the selection process and try as much as possible to create a “business case” for sustainability, such funds in Mexico began with a philanthropic dimension or a characteristic of donating some of its proceeds to social purposes such as environmental conservation projects and educational scholarships. This donation component is something that goes against many European concepts of fiduciary duty, the idea that an investment manager has a responsibility to return money to investors and not impose her or his own ethical modes of decision making.

Until today, savings in Mexico are mainly held by local commercial banks, with pension and investment funds accounting for only 8% and 7% of national savings respectively, though the retirement system has undergone quite some restructuring which led to a surge in managed funds. And so, unlike Europe, sustainability investing is thus done by private equity players or the so-called Impact Investors.


RI in South America is also fairly incipient, with the majority of initiatives taking place in Brazil. The case happens to be the same as in Mexico. Again, RI is led by private equity funds that take on a more philanthropic approach, wherein they invest in social enterprises or donate a part of their revenues to fund community projects. Unsurprisingly, Impact Investing tends to be especially relevant in a region where poverty and inequality are prevalent. It is easier and more practical to invest (or donate) one’s money to causes on the home front, which are easily monitored, unlike the practice in developed countries where recipients are elsewhere. Given its geographical positioning, South American impact funds also tend to focus on addressing the problems of carbon emissions and deforestation. For instance, HSBC’s FIC Referenciado DI Solidariedade donates 50% of its management fees to social and environmental projects whereas Banco do Brasil’s DI Social 50 and DI Social 200 donate 50% of their fees to social projects.

Mainly colonized by the Iberics, most countries in Latin America have a largely Roman Catholic population, which is a possible explanation for the prevalent philanthropic-type focus on the donation of proceeds. Still, investors are shifting towards a more market-oriented approach. With the creation of indices such as the Corporate Sustainability Index (ISE) and the Carbon Efficient Index (ICO2) of Brazil, the Corporate Governance Index (IBGC) of Peru, and the Sustainable Index by the Mexican Stock exchange, there has been increasing readiness of tools available for institutional investors to jump into the game. Such indices make regularly traded companies visible and open to scrutiny. It can serve as a marketing and communication tool to be included in such indices, and companies begin to compete by voluntarily disclosing their best practices. According to scholars, it is this incentive to be part of a list that may actually drive the sustainability practices of firms to come into fruition, creating a virtuous cycle from the top to bottom and back.

Another thing driving the market approach is the environment for disclosure, though such initiatives are generally recommendations rather than regulation. Mexican pension funds regulator CONSAR has published a recommendation for disclosure of RI practices and in 2009, the National Monetary Council, the highest deliberative body of the Brazilian Financial System Council issued a Resolution requiring all Brazilian pension funds to disclose whether they consider ESG issues in their investment decisions, also forcing pension fund leadership in the arena. When it comes, however, to shareholders really fighting for practice change at a corporate level, not a lot of this occurs in the region. Shareholder activism is not a common practice simply because most companies are family owned and thus the market percentage of stocks floating freely is relatively small. There is still not enough influence for minority shareholders or retail investors to truly threaten companies with bad sustainability practices.

But some major shifts are now occurring in the region. According to a UNPRI blog, in 2020, in the midst of a global pandemic, more and more investors in Latin America have advanced in their understanding of ESG investing, making growth of these initiatives an increasing reality. They say that COVID-19 has served to accelerate interest in responsible investment in Latin America because investors want to recover from the pandemic “with a clear vision of how protecting human and natural resources will allow for more resilient and faster growth.” With a culture of philanthropy embedded in religious roots, tools such as indices already up and running, and disclosure becoming the norm, will the pandemic be the catalyst for the practice to finally take off?

The original book chapter on which this series is based is published in Italian: Laurel, D. & Piani, V. 2013 L’SRI nei diversi contesti culturali (Socially Responsible Investing in Different Cultural Contexts) in Creare Valore a Lungo Termine (Creating Long-term Value) eds. Del Maso, D. and Fiorentini, G. EGEA (Milan, Italy).

Daniela “Danie” Laurel is a business journalist and anchor-producer of BusinessWorld Live on One News, formerly Bloomberg TV Philippines. Prior to this, she was a permanent professor of Finance at IESEG School of Management in Paris and maintains teaching affiliations at IESEG and the Ateneo School of Government. She has also worked as an investment banker in The Netherlands. Ms. Laurel holds a Ph.D. in Management Engineering with concentrations in Finance and Accounting from the Politecnico di Milano in Italy and an MBA from the Universidad Carlos III de Madrid.