It was our honor to host Mr. Alan Beard, who leads Interlink Capital Strategies a management-consulting and private equity firm. He provided insights on the role of emerging markets in driving global growth, the concept of global export credit and the work done by Development Financial Institutions among various other topics. It was an interactive session where he discussed case studies and answered various interesting questions that the students had. One of the students wrote “His discussion of the variety of risks that inhibit cross-border capital flows, which are especially prevalent in the emerging and frontier markets, helped me contextualize and better understand the domain in which Interlink Capital Strategies operates and their institutional obstacles.”
Published in the America Economia (March-April 2018), “Redirecting Capital to Sustainable Investment” discusses impact investing among Latin American businesses. To read this article in Spanish, click here.
March – April 2018
Redirecting Capital to Sustainable Investment
Victoria Galeano and Jerry Haar
We are living at an unprecedented time in human history. Never before have consumers been so empowered to influence corporate behavior and firms’ impact on society and the environment. New market incentives driven by selective consumer groups such as millennials and women have begun to redirect capital towards enterprises the importance of being good corporate citizens.
To be a good corporate citizen is consonant with high standards of ESG (environmental, social, and governance). Many investors consider looking for ESG-oriented firms, believing they generate higher financial returns in the long term. More and more available information validates this correlation. For example, the Institute of Sustainable Investing’s extensive study of mutual funds found that sustainable investments in most cases equal or exceed the financial performance of traditional investments.
This has generated a search for sustainable investments and transactions of “green capital” and a proliferation of funds focused on sustainable investment. For example, the market for green equities reached a new historical record of over $200 billion in total issues in 2017. According to Bank of America, $21.4 trillion of global stocks embody ESG criteria.
There presently exist diverse strategies for selecting investments that incorporate ESG. In many funds, the selection process is based on monitoring sustainability indices. These indices compile a list of enterprises and score them based on ESG criteria. In the case of Latin America, the Inter-American Development Bank utilizes Index Americas, the first index to be launched by a multilateral development bank. Index Americas selects 100 enterprises that are both the most sustainable, and have the largest presence in the region.
It is noteworthy that the Latin American financial system has slowly embraced this worldwide tendency, and increasingly, pension funds and other investment funds are incorporating sustainability investments in their portfolios. The leading stock market in Brazil already has an index of corporate sustainability, and the stock markets in Argentina, Chile, and MILA (the integrated stock exchanges of Colombia, Chile, Mexico, and Peru) are in the process of developing similar criteria. At the same time, Latin American businesses are more and more cognizant of the importance of incorporating ESG in their operations. Firms such as FEMSA, Cemex, and Banco Itaú are industry leaders in attaining high standards of ESG.
These enterprises do not only allocate resources to improve their technological systems and internal processes but also invest in broadening their knowledge base of sustainability. In response to this need, various universities have incorporated sustainability into their MBA programs.
Attaining high standards of ESG brings multiple benefits to companies and helps firms achieve larger goals in many instances. Recognizably, however, the proliferation of rankings and standards requires significant resources in the generation of reports, scorecards, and audits. Additionally, obtaining results will invariably require the reconfiguration of internal processes or investment in costly equipment and technologies.
Nevertheless, enterprises that are able to integrate ESG principles in their business models and continually improve their sustainability are those that will be able to generate long-term economic benefits while engaging in behavior that is healthy and beneficial to people, the environment, and society at large.
Victoria Galeano is the founder and director of PRISSMA, a consultancy specializing in the financing of sustainable projects and products.
Jerry Haar is a business professor at Florida International University and a global fellow of the Woodrow Wilson Center in Washington, D.C.
Publicado en la America Econmia (Marzo – Abril 2018), “Redirigiendo Capital Hacia Inversiones Sostenibles” comenta los beneficios de las inversiones sostenibles en empresas latinoamericanas. Para leer en inglés, clique aqui.
Estamos en un momento sin precedentes en la historia de la humanidad. Nunca antes el consumidor tuvo tanto poder en sus manos para intervenir en el comportamiento de las empresas y en su impacto en la sociedad y el medio ambiente. Los nuevos incentivos de mercado impulsados por grupos de consumidores más selectivos, como millennials y mujeres, poco a poco han comenzado a redirigir capital hacia empresas que entienden la importancia de ser buenos “ciudadanos corporativos”.
Ser un buen “ciudadano corporativo” implica tener altos estándares de ESG (ambientales, sociales y gobernanza). Muchos inversionistas consideran que estas empresas además generan retornos financieros más altos en el largo plazo. Cada vez hay más información disponible que comprueba esta correlación. Por ejemplo, el Instituto de “Sustainable Investing” después de un largo estudio de fondos mutuos, concluyó que las inversiones sustentables usualmente igualaban o excedían el desempeño financiero de aquellas tradicionales.
Esto ha generado una búsqueda por inversiones sostenibles y transacciones de capital “verde”, y una proliferación de fondos enfocados a las inversiones sostenibles. Por ejemplo, el mercado de bonos verdes alcanzó a principios de 2017 un nuevo récord histórico con US$ 200.000 millones en total de emisiones y, según Bank of America, aproximadamente US$ 21,4 trillones de activos globales consideran criterios ESG.
Existen diversas estrategias para seleccionar inversiones que incorporan factores ESG. En muchos fondos, el proceso de selección se basa en el monitoreo de índices de sostenibilidad. Estos índices construyen una lista de empresas de acuerdo con un sistema de puntajes que califica su desempeño en ESG. Para América Latina, recientemente, el Banco Interamericano de Desarrollo (BID) lanzó IndexAmericas, el primer índice desarrollado por un Banco Multilateral de Desarrollo, que selecciona las 100 empresas más sostenibles y con mayor compromiso por la región.
El sistema financiero de América Latina se ha unido lentamente a esta tendencia mundial y cada vez más fondos de pensiones y otros fondos de inversión incorporan inversiones sostenibles. La bolsa de valores de Brasil ya tiene un índice de sostenibilidad corporativa, y las bolsas de Argentina, Chile y MILA están próximas a desarrollarlos. De igual manera, las empresas latinoamericanas son cada vez más conscientes de la importancia de incorporar factores ESG en sus operaciones.
Empresas como FEMSA, Cemex y Banco Itaú son líderes en sus industrias por sus estándares en ESG. Estas empresas no solo destinan recursos para mejorar sus sistemas tecnológicos y procesos internos, sino que también invierten en ampliar sus conocimientos en sostenibilidad. Como respuesta a esta necesidad, diversas universidades han incorporado, además, la sostenibilidad en sus programas de MBA. FIU, por ejemplo, en cooperación con el BID, está lanzando un “MBA de Impacto” bilingüe para América Latina con seis residencias en varios países, en el que se integra la sostenibilidad de manera medular en el currículo de MBA.
Aunque tener altos estándares en ESG trae múltiples beneficios a las empresas, también conlleva retos importantes. Por un lado, la proliferación de ránkings y estándares implica que las empresas ocupen muchos recursos en la generación de reportes, scorecards y auditorías. Por otro lado, obtener resultados puede implicar la reconversión de procesos internos o la inversión en equipo y tecnologías costosas. Sin embargo, las empresas que logran integrar principios de ESG dentro de su modelo de negocio y mejorar constantemente su desempeño en sostenibilidad son aquellas que logran generar beneficios económicos de largo plazo a partir de comportamientos cada vez más sanos hacia la sociedad y el medio ambiente.
Victoria Galeano es la fundadora y directora de PRISSMA, una empresa de consultoría para el financiamiento de proyectos y productos sustentables.
Jerry Haar es un profesor de negocios en Florida International University y Global Fellow del Woodrow Wilson International Center for Scholars en Washington, D.C.
ExWorks Capital – a privately funded export & trade finance companyis prepared to finance small to mid-size business as a bridge measure, or ongoing, should the ExIm Bank of the United States have its operations interrupted on June 30th.
ExIm Bank is important to ExWorks Capital under normal circumstances, but also has private capital for trade finance that is often used for companies and transactions which may not fit the usual ExIm Bank profiles.
Furthermore, ExWorks has a SBA export finance platform – World Trade Finance – that is unrelated to ExIm reauthorization issues and completely independent as it operates under the SBA’s authority.
ExWorks provides trade financing with private capital to support the purchase and shipment of U.S. manufactured products to overseas buyers, and to assist and support U.S. manufacturing by procuring and shipping to overseas buyers as a one-stop trading house.
“ExWorks stands ready to support ExIm Bank users and prospective borrowers to bridge this critical period of time should ExIm see interruption in ability to operate” says Randy Abrahams, Executive Chairman of ExWorks Capital. “We remain mystified that a debate even exists around the United States having an export credit agency that by every measure clearly supports small businesses across the country and provides for job creation and preservation in the United States.”
“Without a doubt, small companies will be the most dramatically affected as will be their respective employees by a shut down or interruption of ExIm” comments John McAdams, CEO of ExWorks. “We will be there in support of those companies as needed until the ExIm Bank Charter is reauthorized.”
ExWorks provides trade financing with private capital by buying goods like any domestic customer and taking the risk in selling overseas as well as advancing funds to complete manufacturing of viable export purchase orders.
ExWorks also provides Working Capital lines of Credit under SBA and ExIm Delegated Authority whereby transaction specific loans are provided to U.S. exporters permitting them to extend more aggressive terms to their overseas buyers.
As a result of its private funding, ExWorks Capital will be able to respond to requests as it continues to build its presence as the premier independent non bank lender in the Export Trade Finance space.
Exworks remains hopeful the ExIm Bank will not see interruption in the critical funding it provides for small business, but will plan to help keep these businesses from meltdown in case the much needed authorization for ExIm is not provided by June 30th.
About ExWorks Capital:
ExWorks Capital is an international trade finance company that offers export financing solutions through its export finance company that utilizes its own capital as well as ExIm Bank and SBA export authorities to support small to mid-size businesses. ExWorks Capital’s offerings include:
Working Capital Financing – International Trade Receivable and Inventory Revolvers, including advancing on Raw Materials, WIP and Finished Goods, between $1,000,000 and $25,000,000
Term Loan Financing – Term Loans between $10,000,000 and $100,000,000 to Foreign Customers
Export Trading – Negotiating the buy and/or sell side of a transaction and processing all of the associated documentation from the acquisition of the export to its shipment and delivery to an international customer thus eliminating trade risk to the supplier between $500,000 and $25,000,000
Another concern is more xenophobic. Many Americans are worried about lessened American competitiveness and the rise of China. There were similar concerns about the wave of Japanese cars and the purchase of iconic real estate by Japanese investors in the 1980’s and 1990’s. In fact, the success of Japanese brands, like Toyota, Honda, and Nissan, was mostly positive for Americans, particularly for consumers, as it was accompanied by new capital, more sophisticated domestic manufacturing, new product ideas, and, eventually, improved competitiveness of American car companies. Now individual states in the U.S. have learned to compete to attract manufacturing and services company investment in their communities. No reason not to expand such activities into the agricultural sector as well.
Of even more interest is the reverse flow, where international investments have a spillover effect on home country markets. Why not eat Hunan pork with Smithfield ham during a picnic at the Yangtze river? What pork other than Smithfield’s should be specified when planning the Chinese government-subsidized opening of restaurant chains in Africa ? The Smithfield acquisition opens new markets both for the Chinese investors as well as for American ham. Such is the path of true globalization.
The recent meeting between Presidents Obama and Xi Jinping demonstrated, that the United States and China have more to gain from a cooperative, albeit competitive, rather than a conflict based relationship. Given President Xi’s experience as a student living in Iowa, we can hope that he is instinctively more likely to be drawn to the value of a asymptotic relationship with the United States, rather than one based on abrasive disagreement.
One of the principal motivators for the deal from Smithfield’s point-of-view, was the ability to more successfully sell its products to the huge Chinese market. That such an approach can work is seen in the acquisition of European car-maker Volvo by the Chinese company Zhejiang Geely Holding in 2010. Not only is Zhejiang looking to profit from the existing global business of Volvo, but it is also expected to help the brand further penetrate the Chinese market, the largest and fastest growing automobile market in the world.
This article is a part of a series written by Michael Czinkota and Charles Skuba. Read part 2 here. Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.