Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Marcos Mancini, Director, Sustainable Banking, Banorte, Mexico City, Mexico.
Grupo Financiero Banorte (GFNorte) is one of the leading financial institutions in Mexico. It merged with Ixe Grupo Financiero, thus forming the 3rd. largest financial group in the country with a network of 1,285 branches, more than 6,367ATMs and over 90,000 POS terminals and more than 2,900 correspondence banking locations; it is also the only one controlled by Mexican shareholders. GFNorte offers retail banking products and services, broker dealer services, private and investment banking, mutual funds, leasing and factoring, financial warehousing, insurance, annuities and retirement savings. It is one of the banks with the best asset quality indicators in the Mexican financial system, with high capitalization and liquidity ratios. GFNorte’s shares trade in the Mexican Stock Exchange (Bolsa Mexicana de Valores) with the ticker GFNORTEO and Banorte is part of the Mexican Stock Exchange’s Sustainable IPC Index (Indice IPC Sustentable). Banorte-Ixe’s Corporate Responsibility Department works closely with both internal and external partners to create a more inclusive and sustainable company and society for Mexico and the world recognizing and working to address the environmental, economic and social challenges and opportunities that we face now and in the future. This is achieved through a 4 pillar framework: Community Commitment, Equality and Governance, Environmental Responsibility and Value Chain. Marcos Mancini is Director of Sustainable Banking at Banorte. Before joining Banorte Marcos Mancini worked as a sustainability business consultant professional with experience across different industries. With a BS in environmental sciences and an Executive Masters in Environmental Management, Marcos has developed a deep understanding of how to help organizations respond to the challenges and opportunities of sustainability, going beyond resource efficiency by incorporating sustainability throughout a company´s operations and inspiring strategies to deliver new customers, grow market share and increase profit margins. Marcos pursued a dual MBA/MS degree at The Erb Institute for Global Sustainable Enterprise (University of Michigan: Ross School of Business – School of Natural Resources and Environment) where he focused on measuring and communicating sustainability and incorporating it into finance as a motor for economic growth. At Grupo Financiero Banorte, as Director of Sustainable Banking, Marcos looks to develop innovative financial products incorporating social and environmental components to them. Marcos is also in charge of pioneering the bank into the impact investing space, looking to invest in social enterprises working across México. As Director of Sustainable Banking, Marcos represents Banorte in the Mexican Bank Association (ABM) Sustainability Committee and in CESPEDES (Comisión de Estudios del Sector Privado para el Desarrollo Sustentable) the representing organization for the WBCSD in Mexico.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Marcos Mancini: A socially responsible investment refers to the allocation of capital through incorporation of ESG screening criteria thereby directing the investment to minimize negative social and environmental impact. In our case, we have adopted the Equator Principles; this requires us to implement a Social and Environmental Management System to ensure that the projects we finance fulfill the IFC´s Performance Standards which set the latest trends in social and environmental criteria for financial institutions to adhere to.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Marcos Mancini: Mainstream investing focuses on maximizing return. While it is also the purpose of SRI to produce a profitable investment, its negative screening on certain ESG criteria might prevent the investor from allocating capital into certain industries/ projects due to its specific non-environmental / nonsocial friendly characteristics. This in turn might be subject to a smaller return.
A myopic view on sustainability might lead you to allocate capital into companies that do not fulfill certain environmental, social or corporate governance criteria; exchanging therefore risk over a short term gain. In the long run, it has been proven that there is a positive correlation between a good ESG performance and the long term financial results. It doesn´t have to be a binary decision. You can do well and still do good.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Mexico to manage?
Marcos Mancini: I would argue that the environmental aspect is the most challenging extra-financial theme for companies to manage. Corporate governance is highly regulated and the social aspect usually gains public exposure easier therefore, companies can relate better to the downsides of social risk. Environmental risk on the other hand is something that many companies in México still find it hard to understand and manage. There is still a lot of work to be done to break corporate inertia for companies to really understand the value proposition for sustainability from an environmental perspective.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Mexican companies to analyze?
Marcos Mancini: As investors we find that companies are used to reporting to investors on their corporate governance structure. Additionally it is easier for investors to compare and contrast different governance structures as proxy for corporate performance. Social and environmental themes are much more challenging for investors to analyze since many companies are not aware or currently don´t track their footprint on these aspects. The emergence of the “IPC Sustentable” – Mexico´s Stock Exchange sustainable index – will facilitate this analysis. The downside is that not that many companies have joined the index yet. The positive side is that companies in the index, companies that do track and report on different social/environmental KPI´s and understand the value of acting sustainably, have outperformed other companies. This might encourage companies to act more sustainably.
Emerging Markets ESG: How and where do SRI and sustainability converge in the Mexican banking industry?
Marcos Mancini: As I mentioned before, not that many public companies in Mexico are currently in the IPC Sustentable, therefore it is hard for investors to have a sufficiently diversified portfolio based on the small number of companies in the sustainable index. There needs to be a push on the legislative framework to require companies to report on their social and environmental risks. Encouraging transparency among companies is key to creating social accountability, drive sustainability forward and encourage the advancement of SRI.