World Economic Forum

Oil & Gas Publishers Note: It is nice to look at many different types of articles and opinion articles. While I agree with some of the article, however, take it with a grain (or block) of salt regarding the finance portion of the discussion. 

Latin America and the Caribbean is now the epicentre of the COVID-19 pandemic. More than 170,000 people have died from the disease as of 23 July, and there is a strong likelihood that the region will lose several points of GDP as a result of the pandemic and its various ramifications by the end of the year.

  • The pandemic is ravaging Latin America, but it also offers an opportunity to transform the region for the better.
  • The financial system can play a significant role in building a sustainable recovery through the use of ESG investments.
  • This approach could help to rectify many problems, such as the region’s reliance on fossil fuels.

But these are not the only upheavals the region faces. The climate crisis, albeit unfolding over a longer time period, has many parallels with the pandemic, and ultimately threatens the region, and the world, with even graver economic and health consequences.

How ESG investing can help transform Latin America - oilandgas360People in the region have shown a keen awareness of that threat, even during the COVID-19 crisis. An online survey conducted by Ipsos in April showed that more 71% of people in 14 countries agree that climate change is as serious a concern as the pandemic over the long-term, and nearly two-thirds believe it should be prioritized as part of the recovery.

The good news is that the pandemic creates an opportunity for transformation in numerous areas – and the financial system can play a critical role, specifically through investments that take into account environmental, social, and corporate governance (ESG) factors. Such investing can help to achieve a sustainable recovery and a better future for current and future generations.

ESG investing today focuses on companies’ performance when it comes to climate change, as well as human rights, gender equality, labour protection, forest conservation and a host of other socially and environmentally conscious concerns. It accounts for more than $20 trillion – or one quarter – of all professionally managed assets worldwide and often equals or even outperforms investing that ignores ESG factors. We believe it could be extremely valuable for sovereign wealth funds (SWFs) and government-regulated pension funds in the Latin America region, helping to spur much required changes.

There are several reasons that focusing on ESG investing is particularly important for SWFs and pension funds. To start with, governments have a particular interest in investments that are aligned with their development priorities. Investing in firms that pursue unethical and unsustainable practices – such as high carbon emissions, corrupt practices, or unfair labour practices – can be counterproductive. The costs of those practices will be borne by society, and in the case of domestic investments by communities, employees, and perhaps the nation as a whole.

SWFs and pension funds also have long investment horizons, and the risks of poor management of ESG risks can increase over time. For example, investing in oil or coal firms during the next six months may not be a problem. But in the long-term, those firms are likely to become much less valuable as countries change their energy profiles and move to renewable sources. Further, SWFs and pension funds control a large share of global assets and can use their size and influence to create incentives for firms to improve sustainability, benefiting the countries in which the firms operate.

ESG investments by SWFs and pension funds make sense when it comes to climate change. Such investments help shift investment from polluting industries to cleaner ones, which over the longer term helps the planet while ultimately providing more employment in areas like energy efficiency and renewable energy. Moreover, for governments concerned with fiscal budgets during the recovery, ESG investments don’t involve significant new outlays of cash. They are instead a low-cost policy whereby money is shifted from firms that make little or no effort to address climate change to firms that take the threat seriously and are making a major effort to address it.

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