Strategic ESG

Peruvian pension funds integrate ESG into their strategy and investment processes.

Peru’s private Administradoras de Fondos de Pensiones (AFPs), took their first ESG steps in 2016 by joining the local chapter of the Principles for Responsible Investment, a UN supported worldwide network of investors promoting ESG considerations in investment decisions.

The CIO of one of Peru’s largest AFPs, and a recognised ESG pioneer, recalled, “We were one of the first to sign up to the PRIs in Peru. After this first step, we have worked hard to integrate ESG into our investment analysis, strategy and decision-making.”

When asked what this means in practice the CIO gave a detailed response, summarised as, “When we evaluate any direct investment of any issuer, we not only look at the financial variables but also at ESG, we give them a score and we integrate it into the risk of the issuer. Secondly, we have an active engagement policy and materiality criteria for each industry and a clear plans to exert influence where we can. On climate issues, we have a separate policy to measure the impact and footprint of our portfolio and have defined targets.”

A recurrent criticism of asset managers ‘doing ESG’ is that their policies are simply greenwash. As a portfolio manager of a Canadian pension fund inadvertently admits, “We take ESG very seriously as an organisation, we have a dedicated ESG resource in our compliance team – I don’t know what that means for my portfolio though.”

This is exactly what the AFP CIO is trying to avoid, “ESG should not be hidden in legal or compliance, or worse, in investor relations, it sends the wrong message entirely. Our head of ESG is in my strategy team as ESG is an integral part in the future direction of our business. In support of this, we have invested in education programmes, technology and tools to measure our progress across the entire organisation.”

“ESG should not be hidden in legal or compliance, or worse, in investor relations, it sends the wrong message entirely. Our head of ESG is in my strategy team as ESG is an integral part in the future direction of our business.”

CIO, AFP, Peru

Despite this progress, there are several challenges facing Peruvian AFPs trying to promote ESG best practice, the executive explained, “Raising the bar in Peru is complicated. AFPs are forced to invest 50% of their funds in Peru and if we rule out too many issuers based on ESG, our investment universe becomes very small. Furthermore, a large majority of businesses here are family businesses, and they are more resistant to change and do not have enormous financing needs via the capital markets. These businesses work a lot with banks but the banks are lagging behind in providing incentives for them to improve their ESG standards.”

“Raising the bar in Peru is complicated. AFPs are forced to invest 50% of their funds in Peru and if we rule out too many issuers based on ESG our investment universe becomes very small.”

CIO, AFP, Peru

The AFP CIO is happy with the progress his firm has made but admits there is still much to do, “It takes a lot of work to change the way companies think. There is also a lot of greenwashing and box ticking. For example, there are several cases of companies that are at the top of the corporate governance indexes but are involved in corruption scandals. There is still much more to accomplish.”

Important Notice
While the information in this article has been prepared in good faith, no representation, warranty, assurance or undertaking (express or implied) is or will be made, and no responsibility or liability is or will be accepted by Deheza Limited or by its officers, employees or agents in relation to the adequacy, accuracy, completeness or reasonableness of this article, or of any other information (whether written or oral), notice or document supplied or otherwise made available in connection with this article. All and any such responsibility and liability is expressly disclaimed.
This article has been delivered to interested parties for information only. Deheza Limited gives no undertaking to provide the recipient with access to any additional information or to update this article or any additional information, or to correct any inaccuracies in it which may become apparent.

Most recent in Financials

Building Bridges

The Bridgetown Initiative deserves financial support.

Bolivia’s wallet is feeling light

Dollar shortages and policy reversals. 

Banking on it

Nubank is disrupting banking in Brazil and beyond.

Shallow Pockets

Cuba’s economic challenges (and there are plenty).

I wouldn’t bank on it 

Peru's economic landscape amidst interest rate cuts and uncertainties. 

Bolivia’s economic challenges 

Navigating political turmoil and market uncertainty. 

SoftBank’s Latin America investment strategy

Opportunities and challenges as investors divert their attention to LatAm.

From Global-isation to Local-isation

Nearshoring in Mexico and Central America.

Glimpses of hope

Argentina toils through economic turmoil with light at the end of the tunnel.

Desperate for dollars

Bolivia seeks to sell off remaining gold reserves to alleviate economic crisis.