A sustainable alternative

When it comes to alternative investment strategies, investors are looking to increase their sustainability exposure in both liquid and illiquid assets due to multiple reasons that this Module will explore.

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Why ESG and why now?

ESG stands for Environmental, Social, and Governance, and it is transforming how investors globally select their asset allocations as sustainability becomes the new standard. Governments, companies and individuals are bearing down on the need to reduce carbon emissions to mitigate the risk of worst-case climate change scenarios and build a net-zero economy.

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Covers themes such as climate risks, natural resources scarcity, pollution and waste, and environmental opportunities.
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Includes labor issues and product liability, risks such as data security, and stakeholder opposition.
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Encompasses items relating to corporate governance and behavior such as board quality and effectiveness.

TIP: What is net zero?

This commitment is to reduce greenhouse gas emissions so we can achieve an overall balance between emissions produced and the emissions removed from the atmosphere.

Net zero = greenhouse gas emissions produced ≤ emissions removed

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The world is moving towards a net zero economy and Latin America is no exception. Many investors in the region are still in the early stages of incorporating sustainable investment strategies, and we must help them be at the forefront. As we think towards long-term growth, companies with a focus on sustainability will be better positioned to benefit from the investment opportunities emerging from this transition.

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Roque Calleja Head of BlackRock Alternative Specialists (BAS) for Latin America

When it comes to alternative investment strategies, investors are looking to increase their sustainability exposure in both liquid and illiquid assets.

Did you know?
A survey conducted by BlackRock in 2020 showed that 87% of investors in Alternatives believe that ESG will become more important over the next 5-year period. The pandemic appears to have strengthened this conviction.1
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Better together: ESG and alternatives

The incorporation of ESG considerations in client alternatives positions is becoming increasingly important:

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Private markets not only have the capital committed on a long-term basis which is aligned with driving long-term sustainability outcomes, and can allow for the better expression of sustainable investment themes, such as decarbonization.

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Roque Calleja Head of BlackRock Alternative Specialists (BAS) for Latin America

Let’s talk stats

As of October 2021, Preqin estimated that US$3.1 trillion of private capital is managed by firms committed to environmental, social and governance (ESG) investing, indicating a widespread belief in sustainable alternatives.2

According to the 2020 BlackRock Global Client Sustainable Investing Survey - that interviewed 425 investors, representing $25T in AUM - 36% of respondents were allocating to sustainable illiquid alternatives at the time of the survey, with 56% considering allocation in the future.3

  • Sustainable investing combines the best of traditional investing approaches with ESG insights to pursue investment goals. This includes everything from ESG integration, which is the practice of incorporating ESG considerations into the standard investment process, to developing investment strategies that target specific sustainable themes, such as renewable energy. 

  • Alternative investing has a unique role to play in the transition to a more resilient environment and more sustainable economy. It represents a high-quality way for investors to meet their sustainable investing objectives and generate alpha. 

Incorporating ESG into the standard investment process

Number 1
Sourcing and screening
ESG “deal breakers” identified. Desktop reviews of material and relevant ESG issues.
Number 2
Due diligence
Proprietary ESG questionnaires or scoring completed for all new investments.
Number 3
Asset ownership
Identify and implement apporpriate sustainability initiatives.
Number 4
Measurement and monitoring
Collate, analyse, report asset-level sustainability metrics.

Sustainable alternatives are the future

To reach the net zero economy goal requires transformational investment across sectors, presenting opportunities for private investments:

    • Renewable electricity
    • Energy storage
    • Smart grids
    • Hydrogen
    • Bio and low-carbon fuels
    • Energy management
    • Electric vehicles (EV)
    • Charging infrastructure
    • Low carbon aviation, shipping and freight
    • EV fleet management
    • Mobility services
    • Low carbon cement, steel and chemicals 
    • Circular products and packaging
    • Manufacturing efficiency
    • Sustainable agriculture
    • Smart and connected buildings
    • Energy and carbon efficient construction
    • Energy efficient lighting
    • Carbon capture, utilization and storage
    • Direct air capture
    • Bioenergy carbon storage
    • Reforestation

Let’s recap

Alternatives are uniquely positioned to not only generate alpha for investors but also address some of the most pressing challenges our world faces today. Contrary to public markets investments, many private alternative investments have 10+ year holding periods and the commitment to ESG integration is long-term.

Coupled with active, direct ownership of assets (i.e., a private company, a wind farm, an apartment building, etc.), ESG integration in Alternatives can have a significant influence on improving E, S and G features of an investment over its life and ultimately improve financial outcomes.

With hand-picked Alternative investment strategies, investors can leverage ESG to generate portfolio growth while striving to contribute a positive impact to our planet.

Take a step back
Gurus-in-training let’s revisit Module 3 where you learned about Real Assets and see how these connect back to a sustainable investing strategy with Alternatives. Consider how the shift in global power generation – from fossil fuels to renewables – provides an opportunity to help investors achieve financial returns with purpose.
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Test your knowledge
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Dive into Module 5

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