The big G

Navigating ESG compliance in Latin America. 

With the growing importance of Environmental, Social and Governance (“ESG”) criteria in the corporate world, Latin American companies have had to update various processes to comply with regulations in foreign markets. Companies like CEMEX and Amaggi exemplify this shift, embracing sustainable practices and reaping substantial benefits.  

While there might be costs associated with complying with environmental governance regulations, “the industrial sector has acknowledged the competitive advantages that sustainability measures bring to final products.” A professor in ethics and sustainability at a leading university in São Paulo continued, “Certificates in energy efficiency, air quality, maintenance of industrial equipment, and waste recycling improve brand positioning against competitors at a global level.”  

Brazil stands out as a frontrunner in ESG regulation, aligning itself with global ESG trends by making sustainability reporting mandatory as of 2026. Other countries are also drafting legislation; for instance, Chile is considering enhancements to its taxonomy-classification system of sustainable activities to include more robust governance requirements. “In my view, investment in research and development focused on sustainability can result in the optimisation of production processes, cost reduction and an increase in profit margin,” highlighted the professor. 

The Brazilian government has recognised the importance of ESG and recently approved the Nova Industria Brasil (“NIB”) industrialisation plan. This plan includes several legislative decrees to energise innovation, technological progress and improved productivity. “The government will facilitate USD 300 billion until 2026 to stimulate key industries such as agriculture, healthcare and sustainable mobility, among others,” commented the university professor. 

“The government will facilitate USD 300 billion until 2026 to stimulate key industries such as agriculture, healthcare and sustainable mobility, among others.”

Professor in ethics and sustainability at a leading university, São Paulo

President Lula has acknowledged that the environmental agenda is not merely a political discourse but a regulatory structure favouring new investments. “Industrial production accounts for one-third of carbon emissions, so the challenge is massive in regulatory terms for Brazil.” A director at a Curitiba-based technology equipment production company continued, “Moreover, the International Finance Corporation (“IFC”) estimated that Brazil’s financial gap to achieve net-zero emissions amounted to USD 1.3 trillion.”  

Nearly 50% of Brazilian industrial companies are committed to implementing ESG measures. Most follow the UN sustainable development goals and ISO 400 standards. However, “the main issues for most companies are the lack of human resources to design, implement and monitor these measures, which require short-term investments for long-term results,” reasoned the director.  

From a regional perspective, aligning with global ESG standards is crucial for market access, particularly in Europe, where regulations on traceability and deforestation are becoming stricter. A sustainable investment specialist enforced, “Companies that are already aligned will have an advantage over those that are not. But at the end of the day, they will all have to align to survive.” The main problem is ensuring suppliers also adhere to ESG standards, making the entire production chain compliant. 

“… At the end of the day, companies will all have to align [with global ESG standards] to survive.”

Sustainable investment specialist, LatAm

There is already a roadmap for ESG compliance, but what is about to come out is the taxonomy. In Peru, for instance, “it should come out in the second half of the year, and that is a big step forward,” cited the investment specialist. The Superintendency of Banking and Insurance in Peru also evaluates ESG issues. While Peru currently uses ISFR S1 and S2 standards, they are not compulsory. The country must define “what becomes compulsory, from when and how.” The investor expanded, “There are much more advanced countries such as Brazil, Colombia and Mexico.”  

Despite the benefits, many challenges to ESG adoption remain. Updating a company’s processes to be more ESG compliant can be expensive, especially given that the cost of equipment and machinery relative to labour in Latin America is much higher than in Europe and the US.  

Moreover, much of the technical know-how and technologies required for ESG compliance are in short supply in the region. Inconsistencies in reporting frameworks also pose challenges. For example, in Brazil, the Comissão de Valores Mobiliários (“CVM”), which oversees securities, and the Central Bank, which governs financial institutions, each have their own sets of ESG reporting requirements, leading to potential conflicts and confusion. 

The progress in ESG compliance in Latin America illustrates a lively interplay between regulatory mandates and corporate innovation. “The whole production chain has to be aligned with the standards and the disclosure of information,” asserted the investment specialist. Companies like CEMEX and Amaggi demonstrate that embracing sustainability can bring significant competitive advantages and market opportunities. However, achieving widespread ESG adoption is fraught with challenges, from high implementation costs to regulatory complexities. For ESG implementation, remember that TTTT [these things take time]. 

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