ESG integration in Mexican PE funds

January 15th, 2020

Following our report on the Mexican equities market, this week we are happy to share with you our first in-depth ESG report on the Mexican private equity universe.

We believe ESG integration in private equity funds 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.

In this 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

• We surveyed 29 private equity funds who invest in the Mexican market and with US$12bn in AUMs in total. We estimate this represents ~20% 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).
• Based on the answers we received from the survey, we believe the Mexican PE industry is below the regional average in terms of ESG integration (and clearly lagging more developed markets).
• As AFOREs (and other LPs) increase their demands for ESG strategies and ESG information from funds, we expect this to improve in coming years.
• We found that ESG integration is highest in Growth Equity funds, and lowest in Venture Capital funds. Unsurprisingly, it is also highest in large sized funds and lowest in small sized funds.
• As with many investors in the financial industry, private equity funds seem to 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.
• Formal ESG KPIs adoption is quite low, but there are some signs in the data that this will improve in coming years.
• Interestingly, and despite the relatively low levels of formal ESG integration in many funds, almost three quarters of the respondents felt either satisfied or very satisfied with their ESG disclosure level. As LPs probably will disagree at some point with this (given the reported lack of KPIs), we would expect funds to become hungrier for more ESG data in the medium term.
• Most of the funds who participated in our survey expect the pandemic to have a positive impact on ESG integration in the industry. We agree.

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