Trends Watch: ESG Global Infrastructure Investing in Latin America and the Caribbean
March 09, 2023
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Marc Frishman, Co-Founder & Managing Partner, Exagon Impact Capital.
What is your outlook for ESG global infrastructure investing in Latin America and the Caribbean?
My strong belief is that the sector has made meaningful improvements in ESG over the past ten years. Today, it is impossible to finance a project in the region without compliance to ESG best practices. Many investors require and fund managers today have dedicated ESG professionals ensuring compliance. In infrastructure and power, from an investor's point of view, the “G” or governance is the easiest to ensure as you negotiate what are best practices or you don't do the deal. Similar case with the “E” or environmental and “S” or social, but those issues are always more complicated. Regardless of how "green" a project is, there is always some effect on the environment and usually people that live and/or work somewhere close by.
Where do you see the greatest opportunities and why?
The greatest opportunities lie throughout the region in renewable energy sources. Some of the countries have great natural renewable resources for energy production and some do not. However, the greater investor focus on the space results in opportunity. There is also a tremendous knowledge transfer on best practices focusing on ESG management. This better manages investment risk while making companies more attractive for acquisition by international players.
What are the greatest challenges you face and why?
It seems as though today, the great enthusiasm for ESG investment is tempered by the perception that financial return is sacrificed for a focus on impact and ESG. This is a challenge when raising capital. Despite many investors' promoting that they are focused on ESG and impact investing, the truth is most are judged and compensated on returns. So, if there is a perception that the ESG focus sacrifices return, capital flow from the investment community will not be as strong. This seems to have grown momentum coming out of the pandemic where there is less of a belief that a focus on ESG can return above-average return. There is empirical investment evidence to the contrary and we have always argued that ESG management is synonymous with risk management. If a company does not have best practices in place, there will be environmental issues from local governments and environmental and social issues from local populations. A company that adheres to best practices is less exposed to these risks and simultaneously is more attractive to a buyer for a successful exit at the end of the investment strategy.
What keeps you up at night?
My two French bulldogs snoring.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.