The Growing Importance of ESG in Restructurings

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The number of assets allocated to socially responsible investment products continues to increase, and environmental, social and governance (ESG) criteria continue to gain ground, with many institutional investors investing only in those companies that provide ESG performance reporting.

Socially responsible investment (SRI) began years ago, although the term ‘ESG investment’ emerged from the Principles for Responsible Investment (PRI) published by the United Nations (UN) in 2006. In 2005, Kofi Annan, the then General Secretary of the UN, brought together the world’s leading institutional investors to participate in the development of six fundamental principles of responsible investing, which became a set of investment principles offering an array of possible actions for incorporating ESG criteria into investment practices.

Although these ambitious principles are voluntary, their adoption by senior management of investment institutions represents a commitment to endorse them. Originally, the PRI focused on the fundamentals of large investors, with long investment horizons and highly diversified portfolios. However, they apply to all types of institutional investors, investment managers and their professional services providers. Between 1 April 2021 and 31 March 2022, the number of signatories grew to 4,902 with US$121.3 trillion[2] in assets under management.[3] New signatories include Utmost Group, NFU Mutual, Caisse de prévoyance de l’Etat de Genève and Quonotas Investments Ltd.[4]

The aim of the PRI programme is to encourage investors to consider and implement responsible ESG factors in their investment decisions (stock, fixed income, private equity, hedge funds and real estate assets) and to assist them with their responsible investment approaches. In respect of the latter, during the first quarter of 2022, PRI launched an investor’s guide to diversity, equity and inclusion, as well as due diligence questionnaires for hedge fund and listed equity investors. Further, in light of recent developments, PRI also issued a statement condemning the Russian invasion of Ukraine.

In its latest work programme, the PRI’s chief executive officer (CEO), David Atkin, issued the following message for PRI signatories:

Never before has the crucial role of responsible investment been more apparent, and as a result, the depth and breadth of engagement in ESG by investors continues apace. Responsible investment in many markets has moved firmly into the mainstream, with Bloomberg Intelligence estimating that ESG assets may surpass US$41 trillion in 2022.[5]

In its early days, SRI emerged as a market niche focused on allocating capital to companies seeking social and environmental change. It has evolved into ESG investment, the aim of which is to gather under the same umbrella the fundamentals of ESG (i.e., environment, social and governance topics) and to seek profitability.

There is no universal categorisation for ESG topics and so they can be defined in different ways depending on the industry, company characteristics or business model. For the preparation of sustainability reports, there are different standards or methodologies, ranging from self-declaration, following a particular structure defined by each organisation, or even an alternative model for sustainability, to adhering to an internationally known standard methodology.

In the midst of the proliferation of ESG frameworks and metrics, there are a number of already well-developed and recognised harmonisation efforts. For instance, the Global Reporting Initiative (GRI) is an international, independent body that sets and periodically reviews standards, bringing a common language for organisations to report on effects on sustainability in a way that is both uniform and reliable. The latest review of the GRI standards, approved in July 2021 by the Global Sustainability Standards Board (GSSB), will become effective for any information published on or after 1 January 2023. This means that their use will be required from that date onwards, although earlier adoption is encouraged. However, it is important to clarify that the GRI standards are not binding in any jurisdiction, and so reporting may vary significantly if other stratagems are applied.

Although ESG investment continues to develop, there are a number of challenges that need to be addressed to help nurture and promote this growth, such as clarifying the definitions and use of the terms associated with ESG, to prevent their interchangeability and the confusion and misunderstanding created by this lack of uniformity. In that sense, in March 2022, the investor-centric International Financial Reporting Standards (IFRS) Foundation and the stakeholders-centric GRI (two prominent standard-setting entities) announced their agreement – in the form of a memorandum of understanding (MOU) – to align their respective approaches and programmes to coordinate their guidance and terminology in ESG reporting.[6] This agreement is potentially a path towards globally aligned sustainability standards.

Working together, the IFRS Foundation and the GRI will provide two pillars of international sustainability reporting: one representing the investor-focused capital market standards of the IFRS Sustainability Disclosure Standards developed by the International Sustainability Standards Board, and a second pillar of GRI sustainability reporting requirements established by the GSSB, compatible with the former, designed to meet the needs of multiple stakeholders.

A myth that has perpetuated over time is that sustainable investment implies a financial trade-off. However, in a study carried out by Morgan Stanley,[7] it is claimed that, when comparing total returns of sustainable and traditional funds, there is no financial trade-off. Also, according to the same study, sustainable funds may offer lower market risk than traditional funds. A possible explanation for the foregoing could be that companies with high ESG scores have better organisation and governance and, thus, lower risks in their operations. To the extent that ESG practices generate returns that are similar to, or even exceed, traditional investment, particularly in the long term, it is to be expected that investors consider them a relevant factor in their analyses, encouraging firms to implement them.

In addition to the aforementioned, current global developments have been, and will continue to be, catalysts for ESG matters, given the covid-19 pandemic and, most recently, the war in Ukraine. As the world emerges from the pandemic and begins to operate in new ways, and as Western economies continue to react to the Russian invasion, ESG factors (particularly social ones, such as healthcare and the increase in remote working resulting from the pandemic) will naturally play a new and more important role in decision-making by companies. Further, this reconfiguration of global dynamics and overall global inflation may place companies at risk of defaulting on their obligations, which could force them into restructuring. In that event, it is very likely that ESG factors, in particular, would be considered when it comes to evaluating and supporting a failing company and its operation in the long term.

In Mexico, recent amendments to rules on ESG investment applicable to Mexican pension funds (afores), which became effective on 4 January 2022, make it mandatory to consider ESG criteria investment factors. This factor, by itself, will significantly increase the relevance of ESG criteria in the Mexican market.

In this respect, it is relevant to stress that in December 2021, during the Green Finance Consultative Council’s (CCFV, per its acronym in Spanish) Sustainable Finance MX 21 Forum, the constitution of the Task Force on Climate-Related Financial Disclosures (TCFD) Mexican Consortium was launched. This initiative compiles a series of efforts by private companies to promote the integration and disclosure of financial risks linked to climate change.

The prime goals of this Mexican Consortium include the search for transparency within companies’ internal policies, raising competitiveness and the level of compliance for present and future climate change regulations, and to address potential factors that directly affect the financial community.

ESG as a new way to invest

What is ESG?

The term ‘ESG’ is often used interchangeably with ‘corporate social responsibility’ or ‘corporate sustainability’ but ESG encompasses much more. There is no universal agreement on definitions for the various styles of investment that seek a positive social or environmental outcome. For example, John Hill states[8] that ESG may be summarised as an innovative way of investing that seeks a positive social or environmental impact as an outcome of the development of business without sacrificing the earning of the stakeholders. In fact, it is stakeholders who have been pushing ESG, partly with the support of governments and organisations such as the UN, when an investor or fund manager invests in public debt or equity, often via mutual funds or exchange-traded funds.

To date, there is no general consensus on what is encompassed by ESG; however, the following descriptions are generally accepted:

  • the E factor (environmental) refers to decision-making based on how a company’s activities affect the environment;
  • the S factor (social) takes into account the impact of a company’s activities on the community, for example, in terms of diversity, human rights or healthcare; and
  • the G factor (governance) studies the impact of shareholders and a company’s administration, and is based on issues such as the structure of the board of directors, the rights of shareholders, transparency and compliance with applicable laws, among other things.

ESG rating agencies and scores

Although ESG is a trend that is likely to become the norm for many stakeholders in company restructuring – mainly because of the long-term exposure to ESG risks – there is as yet no consensus on the metrics and standards used to evaluate compliance with ESG matters, and therefore scores can often be contradictory and misleading. To date, there are no standards to evaluate ESG compliance by companies, as no jurisdiction has yet addressed this. ESG scores are typically based on two factors: exposure to risk and opportunity, and performance. As such, criteria for creating scores have been established by private rating agencies, of which there are approximately 125,[9] some of the most notable being MSCI,[10] ISS, RobecoSAM, Sustainalytics, RepRisk, ISS and Refinitiv. Each rating agency uses its own scoring method, resulting in different non-financial metrics being evaluated and disagreement about the components of ESG. These methods also have different indicators, which are not always clear or transparent. This is in contrast with credit ratings, for which agencies use consistent financial information, besides the three major credit rating agencies that now incorporate ESG criteria in their analyses. Furthermore, ESG disclosures are not audited. Finally, to date, ESG ratings have not identified the potential risks of non-compliance, notably including the Wells Fargo and Volkswagen cases.[11] According to an analysis carried out by CSRHub,[12] this lack of consistency has led to different evaluations about the same entity; consequently, critics of these agencies have questioned the validity of the ratings.

Nevertheless, these agencies are becoming an increasingly important part of the market, and a growing number of public companies are taking their scoring more seriously. Furthermore, investment funds and other key players are requiring certain companies to improve their scores as a condition for providing investment but this remains a complicated task as long as these companies do not implement more consistent parameters.

Moreover, companies in Latin America, as in other parts of the world, can comply with all applicable domestic laws while not necessarily meeting the criteria measured by these rating agencies, including intangible matters that are sometimes difficult to identify. This can result in a low score, which can affect the financing of a company that is not otherwise regulated, even when the company – as is most often the case – is not negligent.

This can be an important factor in a restructuring and could become increasingly important. Companies may be denied access to financial support from firms that are now often required to invest or restructure based on ESG standards, and depending on which rating agency has evaluated it. When eventually uniform standards are agreed, the consistent evaluation of rating agencies will be a key component in restructuring calculations.

Stakeholders in restructuring procedures

Companies undergoing a restructuring are normally in need of new money to support the process; this funding is traditionally available through either debt (loans, bonds or other financial instruments) or equity, by the introduction of new investors.

In recent years, ESG has affected the manner in which banks, investment funds and other key stakeholders approach the introduction of new capital in distressed companies and, therefore, in restructuring procedures.

ESG can affect companies that are seeking funding to restructure through debt or equity, or a combination of both, in the following ways.


ESG has rapidly gained a strong presence and is now a factor in a growing number of operations and in the analysis of the viability of a number of projects in the financial sector. The banking industry has a central role as an important catalyst in reorienting financial flows towards sustainable activities and in supporting industries and governments in meeting ESG requirements.

Commercial banks are already adding ESG to the agenda of credit and restructure committees. This is not only prudent in terms of a holistic, long-term analysis of the viability of projects to be financed or refinanced, but also relevant from a reputational perspective on the type of project a bank is willing to support. In recent months, there has been a dramatic increase in ESG-linked loans. The aim of this kind of loan is to encourage a commitment to sustainability by the borrower, through the setting of certain performance targets relating to ESG.

As we already know, distressed companies can initiate a restructuring process by increasing their liquid assets through loans from financial institutions. There is currently no requirement for ESG compliance for a bank to agree to lend money; however, many of the key players in the financial market have set up special budgets for sustainable finance for the coming years.

Furthermore, international organisations are increasing their efforts to promote and establish measures and including on their agenda ESG-related initiatives that will make the implementation of ESG principles appealing for both private and public agencies that manage debt.

For example, the International Finance Corporation has launched its own social bond programme, which combines an investment proposition with the bonus of making a positive impact where it may be applied. Between its creation in 2017 and 2021, 63 social bonds were issued in 11 different currencies, totalling US$3.8 billion.

Another practice that has become relevant to international organisations is the issuance of sustainable and social bonds for the advancement of gender equality. On 25 May 2022, UN Women entered into an MOU with BlackRock for cooperation in promoting the growth of strategies to mobilise capital in support of economic opportunities for women.

In respect of sovereign debtors, ESG factors are already important and will continue to be. The restructuring of debt earmarked for the construction of an international airport in Mexico City (for approximately US$1.8 billion) is one example. An analysis by a global wealth and asset manager estimated the price of ESG risks (including ‘instances of corruption, independence of the central bank, access to employment and benefits in place for workers, social security, and the funding of pensions’) at 30 base points of its spread, which represented approximately 9 per cent of the total spread.[13]


Distressed companies can also seek financing to comply with their obligations by including new shareholders in the corporate structure of the company. Key players here include funds, asset managers, private equity companies and family businesses.

Larger market players continue to highlight the importance of meeting ESG requirements to be able to invest in a company. In his annual letter to CEOs in 2022, Blackrock’s chairman and CEO, Larry Fink, highlighted the importance for companies to have a clear sense of their purpose, to have consistent values and to recognise the importance of engaging with and delivering for their stakeholders (not only as an ideological or ‘woke’ matter but as mere capitalism). These features are the foundation through which capital is efficiently allocated, durable profitability is achieved, and value is created and sustained over the long term.

Mr Fink expressed his belief that the decarbonisation of the global economy will create the investment opportunity of a lifetime and that companies must evolve as the world changes or risk being replaced by new competitors. Further, he stressed the importance for companies to issue their reports consistently with the TCFD and is adamant that Blackrock will focus on sustainable investments.

In his letter, Mr Fink stated:

Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success. Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it.
. . .
Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.
. . .
We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders. It’s also why we ask you to issue reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD): because we believe these are essential tools for understanding a company’s ability to adapt for the future.[14]

Blackrock and other big players continue to stress how important it is for companies to prioritise the application, compliance and continued monitoring of ESG targets. Other funds, such as Fidelity and PIMCO, family businesses, such as The Rockefeller Foundation, and public and sovereign funds also stand firm on the importance of ESG.

ESG will be key to success in future restructuring proceedings, even if the underlying restructuring is governed by the domestic laws of emerging economies where ESG has not yet had any significant influence on the local environment. Apollo Global Management, Aeroméxico’s debtor-in-possession lender in Apollo’s Chapter 11 procedure (which concluded satisfactorily during the first quarter of 2022), has declared the importance of ESG for future investments and includes the following in its responsible investing mission statement:

Responsible investment (“RI”) considers how environmental, social, and governance (“ESG”) issues impact the firm, the companies in which Apollo-managed funds invest, the communities in which they operate, and the world at large. At Apollo Global Management and its subsidiaries (“Apollo”), we have a long-term practice of using ESG factors in our investment management strategy and believe that careful attention to such factors makes good business sense.[15]

As stated above, at the time of writing, there are 4,902 signatories to the PRI, including all of the top 10 private equity firms (CVC, EQT, KKR, Neuberger Berman, TPG, Vista, Blackstone, The Carlyle Group, Advent International and Warburg Pincus), according to the May 2022 update to the PRI’s Signatory Directory.

The outlook in Mexico

On 22 June 2020, S&P Dow Jones Indices (S&P DJI) and the Mexican Stock Exchange (BMV) announced the S&P/BMV Total Mexico ESG Index, which was updated in June 2022.[16] This index provides the local and international investment community with an indicator based on global principles of ESG characteristics. This indicator replaced the S&P/BMV IPC Sustainable Index. The new index uses company selection criteria based on ESG principles. It encompasses a broad set of shares and FIBRAs[17] listed on the BMV, but excludes companies involved in the conventional arms and tobacco industries, as well as those that do not meet the requirements of the UN Global Compact.

The aim of creating this new index was to provide greater exposure to the Mexican equity market and, over time, significantly boost ESG performance.

Reid Steadman, managing director and global head of ESG indices at S&P DJI, noted: ‘ESG criteria have become a dominant trend in investing as market participants increasingly understand the importance and relevance of the indices that incorporate data and principles of sustainability.’ The ESG indices established by S&P DJI add a further element to be considered by investors looking for projects that offer an appealing financial return in a sustainable manner.

In recent years, Mexican investors have shown their interest in sustainable financing and responsible investment by supporting new responsible investment opportunities in Mexico, such as the issuance of bonds labelled either ‘green’, ‘social’ or ‘sustainable’ (known as thematic bonds). This has required investors to be aligned with the MX Green Bond Principles, published by the CCFV, which in turn are allied with the Green Bond Principles published by the International Capital Markets Association.

In Mexico, thematic bonds can be offered as debt instruments, as subordinated debt or as capital instruments or preferred capital for both new and existing projects, as well as for refinancing processes. These bonds will be backed by one of the two authorised stock exchanges in Mexico and have a certification or attestation that the resources will be allocated to sectors considered as eligible (renewable energy, sustainable construction, energy efficiency, clean transportation, water adaptation, waste management, agriculture, bioenergy, forestry and food supply chain).

Prior to 2022, the growth in the number of offerings of these types of bonds was considerable. In the first quarter of 2022, nine thematic bonds were added to the Mexican stock market, which now totals 84 issued thematic bonds that are worth 376.18 million Mexican pesos. Of these 84 bonds, 21 are green (68.914 million pesos), 10 are social (24.677 million pesos) and 53 are sustainable (282.59 million pesos).[18]

The challenges wrought by the covid-19 pandemic in all sectors of the economy demonstrate the need to channel resources with a view to sustainable development in priority areas. The challenges arising from the issue of global warming, and the implications on the supply chain derived from the Russian invasion of Ukraine, demonstrate that the financial world has a fundamental role in promoting and stimulating private and public companies to choose responsible investment.

What comes next?

Almost half way through the 15-year plan to achieve the Sustainable Development Goals set by the UN, and after experiencing the global shock created by the covid-19 pandemic, in addition to the conflict in Ukraine, we expect lawmakers, regulators and investors to focus on ESG factors in their decision-making.

The global Green Swan conference that took place in May 2022 was organised jointly by the Bank for International Settlements, the European Central Bank, the Network for Greening the Financial System and The People’s Bank of China, with the purpose of bringing together high-level central bankers, financial regulators and members of different industries and civil society to discuss the role of the financial sector in the task of mitigating climate-related risks. During the conference, Agustín Carstens, general manager of the Bank of International Settlements, addressed the importance of the central banking community enhancing work in green finance, thus having a greater impact on the issue of climate change. Hopefully, this will come true sooner rather than later.

As regards the war in Ukraine, besides being a military and humanitarian conflict, there are also major global impacts that have been felt in respect of supply chain, economics and the fight against climate change. The latter is due to the source of financing for a conflict in that part of the world, most of which relates to non-renewable resources, thus separate from ESG criteria. It has reinforced the need for a regulatory framework for sustainable finance to meet the goal of a net zero economy, in line with the global agenda.

Given the myriad of rating agencies and reporting frameworks, it is not only expected but highly desirable that ESG indicators become standardised, making them simpler to understand and, therefore, to implement. As their use becomes more widespread, we expect ESG practices to become mandatory not only as a matter of applicable law (such as the climate change disclosure requirements being proposed by the United States Securities and Exchange Commission and similar EU requirements) but rather as a market requirement.

Furthermore, alongside the growth of ESG practices and the measurement of them, it is expected that greenwashing (i.e., spending more resources on marketing products as being eco-friendly rather than in actually making them eco-friendly, or using materials that give the impression of being more eco-friendly than they actually are) will be more easily detected and abolished. Efforts on the matter are continuing, such as the supervisory briefing published by the European Securities and Markets Authority at the end of May 2022, which, albeit non-binding, is aimed at combating greenwashing by investment funds. Of course, social pressure will also contribute to these efforts.[19]

Following the constitution of the TCFD Mexican Consortium, we expect that, within the Mexican financial environment, the TCFD recommendations should motivate an increase in thematic bonds, as discussed above.

We also consider that this should help with detecting and abolishing greenwashing practices.

Currently, the National Banking and Stock Commission of Mexico is leading a task force on information disclosure and adoption of ESG standards within the framework of the Committee on Sustainable Finance of the Stability Council of the Financial System, in which it supports and recognises the need to have a set of unified sustainability standards and frameworks for the disclosure of financial and non-financial information.

As is the case with trends in the investment world, the first to hop on the train will receive the best yields, encouraging others to follow. And, as romantic as it may sound, as ESG practices become the norm, both the planet and future generations will be both grateful and relieved.


[1] Juan Carlos Machorro and Guillermo Moreno are partners and Ana Paula Ibarra is a senior associate at Santamarina y Steta SC.

[3] Fondo Nacional de Infraestructura, BBVA Bancomer, Fondo de Pensiones, CKD Infraestructura México, Nexxus, Afore XXI Banorte, Ainda, Energía & Infraestructura, Operadora de Fondos Banorte, Fibra Uno (FUNO), Corporación Inmobiliaria Vesta, S.A.B. de C.V., Afore Sura, Afore Profuturo and, most recently, Gava Capital and PC Capital are some of the Mexican signatories of the PRI programme, representing diverse sectors, such as pension funds, real estate and infrastructure developers, and private equity.

[4] Note that not only are there new signatories but also that they are coming from new countries.

[8] John Hill, Environmental Social and Governance (ESG) Investing (Academic Press, 2020, London, UK).

[9] Bergman, Curran, Deckelbaum, Karp, Martos, et al., ‘ESG Ratings and Data: How to Make Sense of Disagreement’ (January 2021), at (last accessed 1 July 2022).

[10] MSCI is responsible for evaluating 8,500 companies and more than 680,000 fixed income and equity securities globally, making it the most notable of the agencies. See ‘What Is an ESG rating?’, The Motley Fool (updated 30 June 2022), at (last accessed 1 July 2022).

[11] Timothy M Doyle, ‘Ratings That Don’t Rate: The Subjective World of ESG Ratings Agencies’, American Council for Capital Formation (July 2018), at

[13] Jose Saracut and Vincent Zheng, Manulife Investment Management, ‘Case Study: ESG Integration’ in A Practical Guide to ESG Integration in Sovereign Debt, PRI, pp. 51–53.

[15] Apollo, ‘2018 ESG Summary Annual Report’, at at [2] (last accessed 5 August 2022).

[16] Alsea, Cementos Mexicanos, Grupo Bimbo, Banco Santander, Corporación Inmobiliaria Vesta, Fibra Uno Administración, Grupo Aeroportuario del Pacífico, Grupo Aeroportuario del Sureste, Walmart de México, Qualitas, FEMSA, Coca-Cola Femsa, Banorte, Grupo Televisa, Alfa, Arca Continental, Grupo Rotoplas, Kimberly Clark de México, Crédito Real, Genomma Lab, Nemak, Orbia Advane and Prologis Regional are part of this index (as at 7 July 2022). According to the annual rebalancing of the S&P/BMV Total Mexico ESG Index, and published by the Mexican Stock Exchange, Alpek, América Móvil, Volaris, Elektra and Fibra Macquarie have all recently become part of the ESG Index.

[17] A FIBRA is similar to a real estate investment trust in the United States.

[18] See (last accessed 18 July 2022).

[19] For example, the accusation of greenwashing against aviation giant KLM.

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