Choosing where and what to invest in can often be a difficult choice, with many different factors at play. It’s common for investors to refrain from financing what is outside their comfort zone, and instead sticking to blue chip stocks or property. Others get a little more adventurous and entrepreneurial, and look beyond the bottom line of pure profit and low risk.
One recent and largely positive example of more thoughtful investing has been the rise of ESG (Environmental, Social and Governance) investments, where the aim of capital is to help countries achieve sustainable development goals (SDGs). These include everything from eradicating poverty and providing clean energy, to reducing inequalities and providing quality education.
ESG investing has become increasingly popular, as investors can see healthy returns while knowing that they are making a concrete, positive impact on the destination country in question. In the wake of Covid-19, this is more urgent than ever. In 2020, for instance, foreign direct investment (FDI) into the entire Latin American region shrank by 45%. On that note, we’ve run down some countries that development investors should definitely consider investing in today.
1. Dominica
As you may expect from a Caribbean island nation dependent on tourism, the abrupt pause in the travel and leisure industry in 2020 saw FDI stagnate, falling from a healthy 14% of GDP to just 4.4%. Dominica has long prioritised SDGs, especially since it is a country vulnerable to the environmental impacts of climate change and other natural disasters, such as Hurricane Maria in 2017.
The bold response in the aftermath of the hurricane was down to the government’s assertion that Dominica would be the world’s first ‘climate-resilient’ nation. Several sustainable developments in Dominica have since emerged that have benefited hugely from FDI.
In fact, the nation actively encourages overseas investment in these projects specifically through its Citizenship-by-Investment (CBI) programme. As CS Global Partners explains: “applicants can make a substantial contribution to the Economic Diversification Fund (EDF), a government fund that supports socio-economic initiatives in Dominica”. Some examples of what EDF investment delivers include new schools and hospitals, clean water, affordable energy, industrial innovation and reduced economic inequality.
2. Peru
The jewel of South America, Peru is replete with exciting opportunities for sustainable development. Home to swathes of lush Amazonian rainforest, timber harvesting and farming expansion have presented numerous challenges to its population. ESG investments are therefore essential to address these issues.
Before the pandemic, many lawmakers had passed legislation to transition to sustainable public procurements. The Environment Ministry has also focused on improving the support for biodiversity-friendly business models, as these often encounter issues staying afloat. This has led to finance initiatives such as giving funding to indigenous communities helping to protect the rainforest, as well as investments in microfinance, information technology and energy.
The government has signalled a strong desire to collaborate with the private sector for these impact investments. What’s more, Reuters emphasises how green policies represent untapped opportunities for FDI: “in terms of potential sectors for future investment, renewable energy emerged in first place, followed by retail, which also generates a high number of jobs”.
3. Costa Rica
With a stable economy, world-beating living standards and rapidly growing infrastructure, the rainforested Central American nation is another wise choice for foreign investors right now. In terms of meeting SDGs, the country has seen a surge in environmentally-conscious developments, such as the eco-tourism sector that mirrors Caribbean island nations like Dominica.
What this means practically is that there are strong ESG opportunities — notably, in the renewable energy sector, namely hydropower. Investment Monitor explains that, as part of the environmentally-conscious ambitions, the country is developing “a next-generation green data centre located within a hydroelectric power plant”.
Although hydropower projects need substantial upfront investment, once they are operational they can safely run with little additional expenditure in the long-term. It’s also a secure option, as ESG Investing reminds us: “an astounding 99% of the country’s power generation comes from renewable resources such as air, wind, and water, which takes special relevance for companies looking for carbon neutrality”. As an inspiration to countries all over the world, Costa Rica is a prime example of a country bent on achieving growth through smart, sustainable and far-reaching innovations in infrastructure, rather than pursuing growth simply for its own sake.
