Want to be an ESG investor in Mexico, on a budget?
By: Marimar Torreblanca
Tags: Consulting, Budget, Esg, Esg Investing, Finance

November 12th, 2020

We have been getting many questions from people who want to invest in ESG strategies “on a budget”. In other words, retail investors, who like the notion of ESG, but don’t really know where to start.

Unsurprisingly, many of these potential ESG investors are Millennials, who are somewhat more prone to feel concerned about the preservation of Earth and the society overall. Many ESG papers have pointed to the role that this generation may have in growing ESG investing in the future. But while they inherit or create the wealth that could make them the propellers of the next stage in sustainability, can they contribute? Yes. And the same goes for people in other generations who understand the relevance of stakeholder capitalism but are still not that familiar with this new frontier of sustainable investing. Where to start then if your budget is say US$5k?

We did some research on the ways people can invest in ESG in Mexico with that budget.

This is what we found:

What does each vehicle offer?

Savings accounts and pension fund : these are meant for long-term, controlled-risk investments, which are intended for you to have enough money by the time you retire. Afores, in part pushed by regulation, are in the process of become more active integrating ESG factors into their investment criteria. You can’t really manage the portfolio the Afore invests in (unless, of course, you work at the Afore’s investment team!), so your exposure to ESG factors will depend on the level of ESG integration the Afore has.

: these are meant for long-term, controlled-risk investments, which are intended for you to have enough money by the time you retire. Afores, in part pushed by regulation, are in the process of become more active integrating ESG factors into their investment criteria. You can’t really manage the portfolio the Afore invests in (unless, of course, you work at the Afore’s investment team!), so your exposure to ESG factors will depend on the level of ESG integration the Afore has. Risk level: low, managed by professionals.

ESG integration: depends on your age (which will define your risk parameters and investment objectives), and the Afore you pick. The 3 AFORES who in our view have the highest level of ESG Integration are Afore SURA, Afore XXI Banorte, and Afore Profuturo.

Trading platforms (brokers) : these provide the infrastructure that connects you with brokerage houses/professionals that can trade stocks and ETFs on a global scale. All three (ProReal Time, Ninja Traders, and Visual Chart) offer free limited versions and full versions at a licensing price. Here you could potentially invest on both active and passive strategies that incorporate ESG factors. And go as deep as you want in your ESG analysis (i.e. buy a stock you feel aligns with your sustainability goals, buy an index with an ESG screen, buy an ETF with a given tilt, etc).

: these provide the infrastructure that connects you with brokerage houses/professionals that can trade stocks and ETFs on a global scale. All three (ProReal Time, Ninja Traders, and Visual Chart) offer free limited versions and full versions at a licensing price. Here you could potentially invest on both active and passive strategies that incorporate ESG factors. And go as deep as you want in your ESG analysis (i.e. buy a stock you feel aligns with your sustainability goals, buy an index with an ESG screen, buy an ETF with a given tilt, etc). Risk level: high, stock market knowledge recommended.

ESG Integration: the sky is the limit, it will be up to you.

Trading and investment platforms : combine the previous two, giving you access to stocks, ETFs, and funds from each institution. GBM leads the market with the lowest entry cost and commission per operation, followed by Actinver and Vector. Here again, you can choose your level of ESG integration, and the way you will integrate these ESG factors.

: combine the previous two, giving you access to stocks, ETFs, and funds from each institution. GBM leads the market with the lowest entry cost and commission per operation, followed by Actinver and Vector. Here again, you can choose your level of ESG integration, and the way you will integrate these ESG factors. Risk level: Medium, depending on what you choose to invest in.

ESG Integration: the sky is the limit, it will be up to you.

Crowdfunding (aka. retail private equity): Another way to do sustainable retail investments is to support entrepreneurs whose projects have an ESG focus. Crowfunding has become very popular in recent times, providing an avenue for small enterprises to get funding in early stages. You sometimes lend your money to their cause, and in return, you get a reward or your money back with a premium after a period of time. You sometimes become the shareholder and as such share the upside as well as the downside with the founders. The biggest platforms are Prestadero and Kubo, but there are options to spare.

Another way to do sustainable retail investments is to support entrepreneurs whose projects have an ESG focus. Crowfunding has become very popular in recent times, providing an avenue for small enterprises to get funding in early stages. You sometimes lend your money to their cause, and in return, you get a reward or your money back with a premium after a period of time. You sometimes become the shareholder and as such share the upside as well as the downside with the founders. The biggest platforms are Prestadero and Kubo, but there are options to spare. Risk level: All levels, sometimes your investments will be secured and returned in case the project is not successful, sometimes you become an equity holder and the returns will depend on the fate of the venture you invest in.

ESG Integration: the sky is the limit, it will be up to you.

Investment Apps: many are intended for users who do not understand much about the investment world and who need to learn. They are similar to trading platforms, but structured as a mobile app. The most popular ones are Degiro, Etoro, or Robinhood (if you are a US citizen). Here, you can also choose how far you want to take your ESG strategy, and how you want to do it.

many are intended for users who do not understand much about the investment world and who need to learn. They are similar to trading platforms, but structured as a mobile app. The most popular ones are Degiro, Etoro, or Robinhood (if you are a US citizen). Here, you can also choose how far you want to take your ESG strategy, and how you want to do it. Risk level: Medium to high, although these apps help you out in the learning process, you are still exposed to the stock market.

ESG Integration: the sky is the limit, it will be up to you.

As for the instruments themselves, here is the 101

Funds: There are very few ESG-based funds available in Mexico, and they are usually accessible through more expensive investment solutions (like Wealth Management structures). The most obvious exception to this is the Santander AM ESG Fund which was launched in July and has no minimum investment. Other than this, the alternative of a managed fund with an ESG component would be an Afore who you believe has the best ESG integration strategy.

There are very few ESG-based funds available in Mexico, and they are usually accessible through more expensive investment solutions (like Wealth Management structures). The most obvious exception to this is the Santander AM ESG Fund which was launched in July and has no minimum investment. Other than this, the alternative of a managed fund with an ESG component would be an Afore who you believe has the best ESG integration strategy. Examples of other funds: BLKGLO3 from BlackRock, available through Citi Banamex, or SCOTGL+ from Jarislowky Fraser, available at Scotia Wealth Management.

ETFs: as with regular ETFs, ESG ETFs replicate the behavior of ESG indices. As we have discussed in other blogs, ESG indices are usually a subset of larger market indices, composed by companies which comply with certain ESG criteria. Some options of ESG indices which are replicated by ETFs around the world are:

as with regular ETFs, ESG ETFs replicate the behavior of ESG indices. As we have discussed in other blogs, ESG indices are usually a subset of larger market indices, composed by companies which comply with certain ESG criteria. Some options of ESG indices which are replicated by ETFs around the world are: MSCI indices (list)

FTSE Russell indices (list)

MorningStar indices (list)

Mexican ESG indices (the BMV ESG Index, the BIVA ESG Index, the MSCI ESG Index, etc). Remember the success Blackrock has had with its iShares ESG MSCI Mexico ETF!

Stocks: invest in companies with good ESG performance. Measuring ESG performance is no easy task, as ESG ratings are not homogeneous and sometimes a company can have a great performance in one rating methodology (say MSCI) coupled with a poor performance in another (say Sustainalytics). Institutional investors sometimes have very intricate methodologies to factor ESG topics into their investment process. For retail investors the best solution may have to do with thematic investing (i.e. investing in a company that attempts to solve the problem that worries you the most, or that contributes to the Sustainable Development Goal you care the most about, or that has the most diverse board, etc).

Clearly investing in ESG with a deep understanding of what ESG is and how it’s measured takes time and effort (the information here is just the tip of the iceberg really). The product offering in Mexico is still somewhat limited, but globally there are a myriad of options. Just remember that companies that are part of ESG Indices or score well on a list of ESG factors (such as those necessary for certain ESG ratings), are not necessarily companies that objectively do a lot of good for society. Thus, if you have a particular ESG goal in mind, you may have to be creative as to how to approach it.

Having said that, anyone can certainly become part of the movement either passively (through managed funds, ETFs) or actively (through stock picking). ESG is not a guarantee of better returns, but historic data shows that done right it does provide more resilience.

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

Partner, Miranda ESG