Afore SURA – The journey to sustainable investment

As ESG rises to the top of the boardroom agenda, understanding your priorities has never been more important, says Alejandro Bujanos of Afore SURA

Sustainable investment is a confluence of challenging tasks that companies need to tackle, through which their perspective of the world will be more holistic and improved. To start, they face the challenging alphabet soup of sustainable investing, where there are hundreds of acronyms to be learned and incorporated into their decision-making processes.

Then companies must address the three pillars or letters, ESG (environmental, social, and governance), that group hundreds of aspects that companies must consider to articulate a sustainable strategy. These can range from environmental issues such as climate change, water usage, biodiversity, ocean acidification, species loss, etc., to social issues such as diversity, equality, and inclusion. It also includes the impact of companies on society (both directly and indirectly), and governance issues such as a board’s composition, assessing real independence of board members, alignment of interests with stakeholders, minority shareholders’ rights, board and C-suite compensation, and more.

After that, the challenge magnifies as companies delve into each of these issues. Taking climate change as an example, companies are met with numerous initiatives to be implemented, various measurement methodologies, a possible lack of data, complex science, differing approaches and perspectives, accusations of greenwashing, etc.

A question of priorities

But there’s light at the end of the tunnel; after years of walking through this maze of data and regulation, Afore SURA has come to understand that the key to implementing a successful sustainable investing strategy lies in prioritisation – deciding what to do, how to do it, and who will do it.

Over the past few years, at Afore SURA, we’ve prioritised corporate governance and climate change, primarily through engagement. We believe our role as long-term asset owners is to promote change. In the context of climate change this translates to financing the transition to a low carbon economy, aligned with the Paris Agreement and aiming to limit global warming to 1.5°C. To do this, we encourage all the relevant companies within our portfolios to set science-based targets.

Last year Afore SURA also committed to developing targets under the framework of Science Based Targets Initiative (SBTi). In doing so, we became the first asset owner in Latin America to commit to the initiative, and to integrate Task Force on Climate-Related Financial Disclosures (TCFD) recommendations into our annual reporting. We will start integrating these recommendations as soon as possible for the 2023 annual report, and we aim to finish setting targets and implementing TCFD by late 2025.

We selected a transition approach with targets that recognise commitments because these better reflects our belief in the need for an orderly carbon transition that doesn’t leave out key sectors.

While financing clean technologies is needed, we must engage with high emitters such as utilities companies, gas companies, cement manufacturers, steel producers, transportation companies, etc. If we want to reduce annual global emissions from 56 billion tonnes to net zero, then we need to tackle this problem head on, and fast.

Finally, we want to encourage the financial markets and regulators to work together and to focus on transition alignment, we need to promote transition investments if we expect to have a real-world impact, and not just a green label for our products.