“There’s no solution to climate change that does not have a link to Latin America,” says Fabio Alperowitch. “Every solution passes through Latin America.”
There are few in the Brazilian financial world who are as aware of this fact as Alperowitch, co-founder and portfolio manager at Brazil’s FAMA Investimentos.
While small – it has less than $1 billion in assets – FAMA has impressive ESG credentials. It was the only Latin American investor among the founding signatories of the Net Zero Asset Managers Initiative and has been investing responsibly since its foundation in 1993. Alperowitch also sits on the board of directors at WWF Brazil.
However, he remains frustrated at progress in Brazil, both from local and international investors.
According to Alperowitch, Latin America is not very important for institutional investors, which results in its neglect.
At the same time, local financial markets have historically viewed environmental and human rights themes as left-leaning ideologies and are consequently “totally against those themes”, he says.
“So we have a problem because Brazilians don’t care about the climate and international investors don’t care about Brazil.
“It has been very, very difficult in Brazil to speak about ESG with companies, with other investors and so on.”
Despite these headwinds, ESG started becoming “a trending topic” in the country in 2019. Alperowitch can’t think of any other theme that gained popularity so quickly but says “it was very frustrating because there was a lot of greenwashing, and people were much more concerned with launching products than making commitments”.
In Latin America, agriculture, forestry and land use account for almost twice the contribution to emissions as the global average. Meanwhile, foreign investors tend to focus on power generation when they look at climate change – a less significant contributor of emissions in the region.
This can result in foreign investors “leaving the region aside, as it if were not a climate offender”, Alperowitch says. Investors both domestic and foreign who do hone in on deforestation can also miss the importance of other biomes such as the Cerrado while focusing only on the Amazon.
That said, there are international investors pushing Brazilian companies on ESG topics. Schroders, BNP Paribas and abrdn, for instance, are all signatories to the country’s stewardship code.
The election of Luiz Inácio Lula da Silva as president of the country is also a positive development from an environmental and social perspective. At the same time, Alperowitch stresses that the events of the past few years have shown that “we cannot be dependent on a good government to be successful with the ESG agenda”.
“The private sector must be much stronger,” he says. “Otherwise even though this current government is positive for the environment or for social, the next government can destroy everything.”
FAMA’s solution to these problems is the Climate Turnaround Fund, a targeted stewardship vehicle that is looking to raise $500 million with a hard minimum of $250 million. The fund will take stakes in well-performing companies that are harmful to the environment, and seek to influence them to transition via an escalatory stewardship approach.
For Alperowitch, the pitch is simple. “When we invest in a good business that makes money, that grows, it’s a good investment but with negative externalities,” he said. “When we solve these externalities, the investment makes more money. I offer a chance to invest in good businesses that are harmful to the planet and make this turnaround.”
FAMA will first seek to engage with company management on taking steps to improve, but will escalate to the controlling shareholder – a common feature at many Brazilian companies – if this fails. Should the controlling shareholder fail to engage, FAMA will seek to involve campaign groups and the press, before finally embarking on litigation.
The fund has enlisted Carlos Nobre, a Brazilian climate scientist, member of the Royal Society and co-author of several IPCC reports, to ensure a science-based approach.
Legal expertise will be provided by Caroline Dihl Prolo, who led the environment and climate change practice at Brazilian law firm Stocche Forbes Advogados and has acted as legal adviser to the Least Developed Nations group during UNFCCC negotiations since 2013.
“We are very optimistic about how the legal system in Brazil is going to welcome this kind of case,” Alperowitch says. “There are some favourable decisions in the Brazilian courts that make us very optimistic.”
He notes that the multinational listings of some Brazilian companies mean they can also be targeted in European and US courts.
“We expect to have a friendly approach in the beginning, because we are not going to invest just to clash against the companies,” Alperowitch adds. “We want to go there to persuade companies that it’s not only the right direction for the planet but for themselves.
“I really hope that we are not going to be pushed to go to the courts. But if we do, I think we are going to be successful, and this is going to be a good example for the next company.”
One test engagement in particular has given Alperowitch hope that engagement alone could be successful without having to resort to legal action. He spoke to the controlling shareholders of a large company in Brazil, who told him that three or four years ago they had been climate change deniers and had not properly understood climate change.
However, he continues, the shareholders had changed their opinion. “They understand that it’s not just happening but it could destroy their business, so they are implementing changes.
“This is an example of how controlling shareholders can change their mind with the right arguments. We really expect to have this power to persuade people, but if we can’t, then we go to the courts.”