The implementation of ESG criteria (environmental, social and corporate governance), or ESG for its acronym in English, is becoming less a wish and more a reality, since it has become a possibility for companies to better position themselves in the market and generate greater value.
For companies looking to succeed in business, establishing these criteria is no longer an option. Companies are seeing that if they do not implement them, they put their business at risk, because investors and consumers are demanding them, said Marina Cigarini, managing partner of McKinsey Mexico, at the inter.mx Expansión Summit 2022.
“There is a big difference between those who do it to survive and those who do it by incorporating it into the company’s strategy. About 95 or 96% of the companies in the S&P500 (one of the main indices of the US stock market) already have an ESG report and have to justify the commitments that were made”, Cigarini commented.
The incentive for companies exists, since it has been proven that for companies issuing securities it means a higher yield and a lower cost of funding, therefore, a better outlook for the market. “The investors’ decision is aligned with the financial impact of ESG practices,” said María Ariza, general director of BIVA.
“In Mexico, the demand for ESG products has been increasing substantially since the Afores have made it a priority to incorporate these criteria into their investment strategies, we have seen how a greater number of corporations and government institutions have been adopting issues, thematic bonds that They include green, forestry, social and gender bonds,” said Ariza.
The board pointed out that currently 50% of the bond issues carried out in BIVA have ESG characteristics “and we will be seeing more appetite, because investors respond to that fiduciary responsibility they have for their own clients,” said Ariza.
Felipe Vallejo, global director of Corporate Affairs at Bitso, added that these topics, which have traditionally been considered a luxury or a medal for companies, are a competitive advantage in the market, to attract talent, users and investors.
“Now when you are looking at capital raising issues with investors and financial partners they ask you about the ESG policies you have. Even in interactions with public policy makers, it has become an important piece that is evaluated,” Vallejo said.
part of a whole
The ESG pillars must be part of the companies’ strategy practices, since it is something that goes deep into the company’s operations and its business, it is not something that can be done separately, Marina Cigarini assured.
All the initiatives that have this type of criteria seek to have a better control of the risks, a better administration of all the edges that the companies and the investors are monitoring, added María Ariza.
“The main key must be the vision, the strategy and the commitment of the board of directors of the companies, the genuine desire to do it out of conviction and not to join the wave. From the CEO to the committees that can be established in the administration so that everyone is aligned with the paradigm shift. Without this, there will hardly be a really significant change,” said Ariza.
If this is not the case, issues such as greenwashing arise, a sensitive issue at a global level, a practice designed to create an illusion that an entity is responsible when in fact it is not, and that some companies have used to join this wave. green with the purpose of aspiring to a certain reputation, capital or funding.
Many challenges ahead
Marina Cigarini was clear: “Mexico needs to speed up a lot, we don’t see all entrepreneurs ready or willing to make the necessary investments to implement ESG measures and the cultural change that is required.” For example, in gender equality, if we continue at the same pace, parity will be reached in 100 years, he acknowledged.
“Among the main limitations that companies in Mexico have to implement ESG measures are the limited resources of the companies, the talent of the management teams, capital, time and little interest,” said Cigarini.
María Ariza recognized that there has been progress in Mexico, a change that was accelerated by the issue of the pandemic. However, we are still behind other markets, including emerging markets, in adopting these criteria. In the United States, 95% of the companies in the main indices have adopted ESG criteria, while in Mexico there is a large proportion of public companies that have not yet implemented them. “We still have years to catch up,” said Ariza.
Resources is an extremely important issue that limits the implementation of ESG measures in organizations, especially for small and medium-sized companies that have more limited resources. “It is necessary to convince companies that this is an investment and not an expense, so that they can be more profitable in the future and have access to more sophisticated investors,” concluded Ariza.