ESG in Mutual Funds in Mexico

This week we want to highlight some interesting data points from Morning Star/Sustainalytics’s most recent Mutual Funds Snapshot for Mexico. This report looks at mutual funds which, according to their prospectus, have an ESG component in their investment mandate. Interestingly, in Mexico:

• These funds only have a 16% exposure to Mexico. Their largest exposure is to the US (49%).
• Their sector exposure is quite high to tech and financial services (unsurprisingly), and quite low to energy and utilities (again, no surprises there). Real estate is also a less favored sector, which in Mexico is interesting since real estate companies are relatively mature in terms of ESG locally.
• 72.9% of the companies built into Mexican sustainably mandated mutual funds are North American (USA/Canada/Mexico), with 49.1% of this percentage corresponding to US-corporates.
• The corporate sustainability score for their holdings lies in the mid risk segment, while the sovereign sustainability score is closer to a low risk category.
• The ESG Pillar Scores for Mexican mutual funds (out of 10) were as follows: 8.2/10 Social, 6.5/10 Governance, and 4.3 Environmental.

Keep in mind that ESG-mandated mutual funds can look very similar to non-ESG peers. Sometimes, blue-chip large cap companies with hefty resources and communication strategies that were already being picked by portfolio managers may be picked by ESG conscious investors leading to overall portfolios that are not that different. This doesn’t necessarily mean the ESG conscious investors are not paying attention to ESG, but many times liquidity constraints and/or communication strategies matter. Small or midcap companies with stronger ESG scores or lower ESG risk may have either smaller portfolio weightings or are excluded completely.  

While the growth of sustainable investing globally is promising, it’s essential to recognize that mutual fund managers must walk a tightrope when it comes to serving both ESG mandates and investors’ requirements. However, we believe these mandates are creating the right pressure for all stakeholder groups to better understand potential crossovers between profitability and sustainability.

I hope you found this interesting. As usual, if there is anything we can help you with, or if there is an ESG topic you would like to know more about, please let us know.

Best,

Marimar

CEO, Miranda ESG