Areas Of Focus

Green and ESG

ESG or Environmental, Social and Governance policies are here to stay. It is much more than just a decision about doing what is socially responsible or morally right. Even though that even in 2017 already over 80% of S&P 500 corporations were reporting their performance against environmental, social and governance standards [4], this is not the case in Mexico.

Mexican consumers are becoming more demanding regarding green buildings, social responsibility, and overall governmental compliance. This is excellent news for the real estate industry as green buildings are more cost-effective, have more appeal to tenants and have a much longer life span. Even though location remains the key factor to determine a property’s value and appeal, incorporating technology to reduce its impact on the environment is becoming an important sales and marketing tool for new projects in Latin America.

An environmentally friendly real estate project must consider:

  • Environment: Energy, waste, and water management and possible ecological impacts
  • Social capital: Human rights and community relations plus customer welfare and privacy
  • Human capital: Fair and transparent labor practices and employee happiness
  • Governance: Pristine business ethics, fair competitive behavior, risk management and knowledge of the legal and regulatory environment.

Hydro

According to the United Nations estimates, the current world population of 7.6 billion is expected to reach 8.6 billion in 2030, 9.7 billion in 2050 and 11.2 billion in 2100.

In terms of Energy by 2070, the world is likely to be using at least 50% more energy than it does today as the population grows and people seek to improve their quality of life.

Need for energy solutions: according to the International Energy Agency (IEA), renewable energy generation is expected to underpin the growth of electricity from 18% to 50% of energy supply by 2050. The remaining energy demand that is difficult to electrify will still require cleaner solutions.

Mitigating climate change: the world currently emits 33 billion tons of energy-related CO2 each year. To limit the rise in global temperatures to 2°C, the IEA has calculated that energy-related CO2 emissions need to fall to around 18 billion tons a year by 2040. The challenge is not just to reduce emissions, but to do this while providing more reliable and clean energy supplies.

According to "Organizacion Latinoamericana de Energía (OLADE)" projections, Latin America’s renewable energy will add 325,660 MW of wind, hydro, gas, solar, biomass and geothermal.

Hydro, wind and solar are the favored technologies across the region. According to the projections, in the next 20 years, Solar market will grow 304% from 14,155MW to 57,133MW; Wind 266% from 34,351MW to 125,225MW and Hydro 42% from 206,163MW to 292,258MW.

 Graph 5 Projected Installed Capacity in Latam by Technology

If we considered USD$1.5MM as the average cost per MW the LATAM region will need over 488 billion dollars of investments in the next twenty years.

Solar and Wind

In terms of solar and wind only, by 2040 the LATAM region will add more than 133,000MW that means almost 200 billion dollars investments.

Brazil is the lead country with 62,000MW [USD$94B Investment or 47% of total investment] and Mexico with 26,500MW [USD$39.8B or 19.9% of total investment] both combined will require more of 134 billion dollars of investments or the equivalent of 67% of the total investment needed to comply with the requirements of the market.

Wind

 Graph 6 Projected Wind Installed Capacity in Latin America

Solar

 Graph 7 Projected Solar Installed Capacity in Latin America

Financial Inclusion and Wealth Management

While in the USA and some European countries the Financial Markets are evolving to use of Robo-advisory platforms, virtual advice and digital market solutions using algorithms, artificial intelligence, and blockchain, where “do it yourself” approach via apps is the trend; the rest of the world, especially in Latin America, are still finding solutions for basic transactions like payments and credit.

But, if we position ourselves in the shoes of half of the Latin American population, one single common denominator for all of us would be restricted access to financial instruments. And maybe our first thought would be, that it´s unfair, discriminatory and irresponsible. We believe that in a globalized world, everybody should have access to ways to store, move and access money, through products and services that are delivered responsibly and sustainably.

In some countries like Mexico, there´s no option than using cash only, for more than 70% of the population, according to the World´s Bank 2017 Findex report. Even when there´s a 90% coverage of the 3G cellular network, and 60% of adults own a cellphone, only 4% of nearly 128 million has used a banking app or has done at least one digital transfer of money. Our mission is to improve people´s lives by enabling easy to use banking technology on their day-to-day activities.

Start-ups from Brazil, Mexico, Colombia, and Argentina are leading the Fintech arena in Latin America where the debate and market excitement is about the immediate access to wallet-payments solutions to avoid the use of cash; lending and credit solutions for credit cards, mortgage, commercial and personal loans; insurance products to protect the person and their properties; wealth management and financial education.

It is estimated that around 65% of the Latin American population is unbanked, creating a great opportunity for Neo or Challenge Banks to target a segment of the market that is underserved.

Challenges and Opportunities for Financial Institutions

In terms of regulation, Mexico has advanced the issue of a Fintech law, launched in March 2018. Mexico became the 1st country in Latin America with a Fintech Law for wallet and crowdfunding. Considering the differences in regulation between countries, fintech solutions still rarely cross borders. To be successful in Latin America, you need to “play local” and in our case, we are locals in Mexico and Panama.

We think that digital banking, credit, lending and solutions like crowdfunding to fund projects, are great opportunities in the markets we operate.

For more information about our firm and the services we offer, send us a quick email or call the office. We would welcome the opportunity to speak with you.

amendez@royaleaglecap.com |  (281) 995-9731