4 trillion annually could bridge the inclusion and sustainability gap in 10 years

ESG criteria confer a positive impact on society, the environment and corporate good governance, while also representing a lever for sustainable growth in the private sector. Furthermore, they have become a mainstream consideration for investors, as there is a positive correlation between ESG ratings and stock returns.

Currently,  88% of listed companies currently have some kind of ESG program. A figure that showcases the efforts being made by organizations to progress towards a more inclusive and sustainable growth model that leaves poverty behind. “As we face up to the challenges of climate change and the SDGs, we need more sustainable investments. We must support developing countries so that they make use of ESG-related instruments such as green, social, and sustainable bonds. The OECD is committed to helping them use official flows to mobilize private funding, learning and exchange and to guarantee that the instruments linked to these indicators comply with quality standards and have an impact on development”, highlighted Pilar Garrido Gonzalo, the OECD’s Director for Development Co-operation in her speech during the event “ESG: a lever for financial inclusion and entrepreneurship”, held on Thursday in Madrid.

Panel: ‘ESG: a lever for financial inclusion and entrepreneurship’. L-R: Pilar Garrido Gonzalo, director for Development Co-operation, OCDE; Javier M. Flores, CEO, BBVA Microfinance Foundation; Ana Sainz, general director, SERES Foundation; Ramón Baeza, managing director and senior partner, BCG Madrid y Rafael Campos, CFO, Ecoalf.

The gathering was attended by the heads of several organizations and moderated by Ana Sainz, Managing Director of the SERES Foundation: “For 14 years we have been working towards a business model that shows that you can make a profit while also having a significant and sustainable positive impact on society. No sustainability and resilience plan can progress unless we focus on the people.  ESG factors are important strategic components that drive financial results. Integrating them into organizations is the best tool for managing risks and optimizing opportunities in the long term”.

Regarding sustainable corporate growth, Rafael Campos, CFO for clothing brand Ecoalf, guaranteed that, “We have seen how decisions that benefited the environment also ended up benefiting our business, in the long term, even though in the short term, they weren’t very profitable. This is why we believe that ESG companies have to be understood and assessed with slightly differentiated criteria, compared with the rest.”

Javier M. Flores, CEO of BBVA Microfinance Foundation (BBVAMF), explained how the Foundation applies ESG criteria: “We have an internal and an external environmental sustainability strategy. We create products and services specifically to enable the entrepreneurs we serve be more resilient and for their businesses to be more environmental friendly. The social dimension is in our DNA, because our purpose is to drive the sustainable and inclusive development of low-income people in Latin America. Likewise, our governance framework is designed to oversee compliance with this purpose, in line with ethical values and a code of conduct for our 8,000+ employees that encourages diversity, equity and best working practices.”

Nevertheless, the take-up of ESG in microfinance is still at an early stage and there is much to do to ensure that sustainability is integral to this sector in Latin America.

“Financial inclusion through entreprenurship in Latin America”

To make ESG criteria assessment more robust, as well as its impact on society, BBVAMF in collaboration with Boston Consulting Group (BCG), has elaborated the Financial inclusion through entrepreneurship in Latin America” report.

In his presentation, Giovanni Di Placido, Research Director of BBVAMF, highlighted that “in  Latin America only a third of the SDG goals are on track to be reached by 2030, according to the latest results of ECLAC’s regional trends to 2030. To achieve the SDGs the private sector would have to invest nearly 4 trillion euros annually”.

Ramón Baeza, managing director senior partner of BCG Madrid, pointed out that financial inclusion brings with it enormous social benefits: “Access by the most vulnerable to financial markets is a form of growth that benefits the whole society. Getting a loan to become an entrepreneur means that ideas can be acted upon. Otherwise, the entrepreneur has to save until they have the financial capacity to start. And too often that never happens”.

The report, in figures:

  • 24% of adults worldwide are unbanked.
  • The rate of entrepreneurship in most Latin American countries is much higher than in wealthier countries, such as the US or Spain, but few Latin American entrepreneurs succeed in bringing their enterprise projects to maturity.
  • 20% of young people in Latin America are unemployed and 3 out of 4 people with jobs are working in the informal sector.
  • Between 20 and 30% of women in the region are entrepreneurs, compared to 11% in the rest of the world.
  • Women in Latin America set up their own business activity between the ages of 30 and 50.
  • There is a direct correlation between greater poverty and lower educational attainment.
  • 45% of current jobs are at risk of being automated.
  • Of the 15 million migrants in the region, nearly half have migrated in the last five years. Venezuela is the biggest source of migrants and Colombia the biggest host, followed by Peru and Chile.
  • Migrants: a group in search of a helping hand and opportunities. This perfectly describes Andrés Hernández and his partner, formerly teachers in Venezuela who moved to Colombia looking for a new life. Andrés decided to become an entrepreneur with the support of Empropaz, an initiative within the Colombian institution Bancamía, which belongs to BBVAMF, and he set up Tu esfuerzo escolar (Your schooling effort), an academy for children. Empropaz made training modules available to him to improve his service offering. “The people at Empropaz have become a really important partner; thanks to them we have started to realize our dream in Colombia”, emphasized Andrés in a video that was shown during the event.

During the event’s closing speech, Andrés Allamand, the Ibero-American Secretary General, indicated that the report is an example of stories of overcoming obstacles and success in Ibero-America that show how the most undermined populations – through institutional support – , can move on and fulfil their dreams through entrepreneurship, an enterprise that changes their lives and that of the societies in which they live.