Rudder stroke: towards impact investing


By CAPosts 02 December, 2020 - 12:04am 94 views

(Expansion) - COVID-19 marks the beginning of a new era in many ways and the way we should invest is one of them. Undoubtedly, the fall in investment in Mexico will affect the economy of families, but the size of the problem depends on whether we make the decision to focus our economic recovery on a sustainable path. Fortunately, today there is already a trend of "impact investments" in which a financial return is sought that generates, at the same time, social and environmental benefits.

Impact investments in Mexico and the world

Impact investments arise as a solution to environmental and social problems that the government or philanthropy cannot cover. The most critical issues are climate change and extreme inequality. Therefore, adding value from this perspective is key and could also translate into the generation of wealth, in a broader sense. The term impact investing was first used in 2017 by the Rockefeller Foundation. According to this institution, it is estimated that the size of the market is 9 trillion dollars only in the United States. However, it would seem that this progress is late to achieve the Sustainable Development Goals (SDGs) proposed for 2030: according to BlackRock, developing countries face a deficit of 2.5 trillion dollars in investments necessary to meet the SDGs. Globally, it is estimated that the total investment reaches the figure of 300 billion dollars. Therefore, a transfer of just 1% of that amount to impact investments would push the world toward meeting these goals. In theory, impact investing accepts lower financial returns than traditional options. In other words, they are willing to sacrifice a part of their earnings in order to generate a positive impact for society. However, in 2020 it was identified that almost 70% of investors seek competitive rates of return, according to the Global Impact Investing Network (GIIN). In addition, 90% confirmed that their expectations were met in terms of financial results and almost 100% saw the social and environmental objectives being achieved. Therefore, the sacrifice of profits is not necessary, it can be achieved to generate social and environmental value, at the same time of profitability. In the case of Mexico, the Alliance for Impact Investment in Mexico (AIIMx) estimated in 2017 that there were 108 impact investments in the country with a value of 185 million dollars. Although we could identify Mexican investments with this approach for several decades, not all of them can be classified as “impact investment” because they lack a clear methodology that measures the social or environmental effect.

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Anecdotal reports or reports with the number of general beneficiaries are not enough to meet the expectations of investors. For this reason, there is much that can still be done in our country to create and measure impact investments. One of the main conditions for the success of impact investments is the monitoring and evaluation of the benefits initially raised. Investments must have a commitment to measure and report the performance of the projects to which the capital was directed. Therefore, transparency and accountability are a decisive factor in strengthening confidence in this market. This becomes more relevant if it is taken into account that the greatest risk of impact investments is related to the business models of the projects. That is, despite a growing number of responsible investors, there is growing concern caused by the lack of professionally structured projects. The Global Impact Investing Network (GIIN) has identified that the risk associated with business plans is much greater than those related to macroeconomic conditions. The global growth of the impact investment market is accelerating, which favors that in Mexico we rapidly change the paradigm and implement this type of comprehensive solutions. This involves two short-term challenges. The first test is to effectively communicate the positive social and environmental impacts that can be achieved with this approach without compromising returns. The second challenge is to contribute and adopt standard and transparent methodologies so that Mexican investments are guided by indicators of profitability, risk and impact. We have an exceptional situation: COVID-19 showed us that the world can change from one day to the next. This is how we can also do it by taking a turn towards responsible investments with society and the environment. Let's bet on impact investments. Editor's note: Rodrigo Osorio Díaz is the head of the Puebla State Energy Agency. Follow him on LinkedIn . The opinions published in this column belong exclusively to the author. See more information about this and other topics in the Opinion channel

Source: MSN