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South American miners, crude oil and natural gas producers must improve corporate governance as investors reshuffle their portfolios to invest more heavily in carbon-free assets in the face of global warming.
Industries will have to grant greater disclosure and adopt stricter environmental principles to attract investors, according to Aldo Ferrini, CEO of Grupo Sura-controlled private pension fund AFP Integra.
Ferrini, who also heads the Peruvian chapter of Principles for Responsible Investment (PRI), spoke to BNamericas about the need for improved corporate governance, government support and the reaction of local capital markets to the initiative.
BNamericas: What do you hope to achieve with the Principles for Responsible Investment (PRI) initiative, and what has been the reaction of financial markets, considering limitations to alternative investments?
Ferrini: We're just starting out. We launched this initiative a year-and-a-half ago, but it took time to put together the regulations, form the association and gather people together. We have broad ambitions, which is to ensure all institutional investors in Peru are part of this initiative and help attract practices from abroad to make the market more competitive. There's an environmental slant, because of the situation we're facing, but also corporate governance and social responsibility. The three pillars are fundamental for this initiative. The first impact on Peruvian capital markets will be trying to keep strengthening corporate governance. Obviously the environmental issue will have a positive impact, but we have to choose how to make the biggest impact. The issue of corporate governance has been around for a long time in Peru, but we have to improve it.
BNamericas: Will that involve greater disclosure?
Ferrini: I believe it will. We have to demand that disclosure from regulators. It's an issue that has attracted a great deal of interest from investors. There are many investors that implement these practices individually, but if we bring all that together, I believe the power of the collective will be significant.
BNamericas: AFP Integra's parent company Grupo Sura is heavily invested across South America, a region that is dependent on commodities, especially extractive industries such as oil and mining, which aren't exactly the most environmentally friendly. What other alternatives do investors have?
Ferrini: The idea isn't to punish or to stop investing in extractive industries. Extractive industries are necessary. Look at Tesla with electric cars: you need zinc and aluminum for their doors. You need copper for iPhones. The issue is how we take on extractive industries so that they're as responsible as possible. The issue of corporate governance is also key for the banking sector, and we've seen all the problems they have in Europe – they face high risks. I don't want the PRI initiative to be slanted or compared solely to the environmental issue.
BNamericas: Your new president is a man of the world who has worked in private equity for almost his entire career. How have you perceived the government's reaction so far? What can the government do to support the private sector – will it be necessary to change a lot of legislation?
Ferrini: I'm not an expert on legislation, though I believe we need to work together. The fact the banking superintendent and the environment minister came to this event makes me very optimistic about the level of interest shown by the current government.
BNamericas: There's a National Geographic map portraying how large swaths of the Peruvian coastline would disappear if the sea keeps rising. Yet [asset manager] Amundi claims that people over 50 aren't very interested in the issue of climate change. Are the older financiers on capital markets aware of the issue and do they talk about it?
Ferrini: It's natural that it's an initiative that is supported more by younger people, but in no way are people with more experience insensitive to the issue. At the end of the day, new tendencies are proposed by the young, but if they're not adapted by all generations, they don't prosper. There's a role for the younger generations to transmit their concern.
BNamericas: Is there enough time left to change things?
Ferrini: I hope so. We can either say there's no time left and do nothing, or say, as we don't know how much time is left, the option of doing something is much better than waiting for the end.
About Aldo Ferrini
Aldo Ferrini, who holds an MBA from Spain's IESE, has worked at AFP Integra since 1997 and was named CEO in September 2013.
About the company
AFP Integra, which was acquired from ING by Colombia's Grupo Sura in 2011, is the largest of the four private pension funds in Peru, managing US$13bn in assets through end-September 2016.