ESG integration in Mexican PE funds 2021 report

Following our report on the Mexican equities market, this week we are happy to share with you our updated annual ESG report on the Mexican private equity universe.

We believe ESG integration in private equity markets is as important as it is in public equity markets (if not more given the development stages of some companies in PE funds’ portfolios, and continuous need to fund raise from ESG-regulated European, American, Canadian, and Mexican pension funds). LPs globally seem to agree, asking their GPs to design and maintain robust ESG strategies which can be communicated to them through the disclosure of transparent metrics.

We surveyed 26 private equity funds who invest in the Mexican market and with close to US$10bn in AUMs in total. We estimate this represents ~17% of the industry in Mexico, and we assume there is a bias towards higher ESG integration in funds who decided to answer the survey (as funds who have done nothing about this topic may not want to disclose it). In the report we analyze the survey answers we received from private equity funds who invest in the Mexican market. Find below the Executive Summary, or you can read the full report here.

 Executive Summary

• Based on the answers we received from the survey, we believe the Mexican PE industry is still lagging more developed markets in terms of ESG integration. Yet, we see some positive signals in the data that people are paying more attention to these concepts and are starting to better understand what it implies to have full ESG integration in a fund.
• As AFOREs (and other LPs) increase their demands for ESG strategies and ESG information from funds, we expect this survey’s results are likely to improve in coming years.
• We found that once again ESG integration is highest in Growth Equity funds.  Unsurprisingly, it is also highest in large sized funds and lowest in small sized funds (even though smaller funds are better at communicating ESG strategies to investors).
• As with many investors in the financial industry, private equity funds seem to still be more comfortable considering corporate governance factors in their investment process than environmental or social factors.
• The large majority of the industry has not yet gone through formal materiality analyses at the fund level or at individual investment levels. We would recommend funds who are just starting their ESG journey to look at doing a materiality analysis as a first step to guarantee their strategy is focused on the right topics.
• The large majority of the industry has not written a responsible investment policy either. We believe a responsible investment policy is also one of the first steps any fund with an ESG inclination should take.
• Formal ESG KPIs adoption is still quite low.
• Satisfaction with ESG disclosure level fell materially year over year. We believe this shows GPs have realized what full disclosure of ESG topics entail, and how near or far they are from this. It could also portray that LPs have increased their demands for ESG data and GPs are more aware that they need to improve on this front.

We hope you find this report interesting. If you have any feedback or questions on it, please feel free to reach out.

Best,

Marimar

Partner, Miranda ESG