The ‘S’ in ESG

Increasingly, reputation not regulation is driving corporate attention on social matters in Latin America.

Latin American governments, companies, and consumers are increasingly concerned about the social pillar of ESG and its relevance to shareholders, employees, suppliers, and customers. What started as a legal and regulatory concern for businesses has expanded its relevance to become an important part of corporate reputation.

“Regulation of ESG issues is tightening across Latin America,” explained the sustainability manager of a multinational mining company, “as more countries in the region ratify international standards. For example, in Brazil, employment law is very strict, ISO certifications are essential, and it is mandatory to have an operational risk programme as established by a regulation of the Secretariat of Employment and Health. If you look at most of the largest companies in the region, they now have huge teams dedicated to ensuring regulatory compliance and ESG matters.”

“Regulation of ESG issues is tightening across Latin America as more countries in the region ratify international standards.”

Sustainability manager, multinational mining company, Brazil

The formalisation of Operational Health & Safety procedures, ESG risk management and, in particular, the focus on the wellbeing of employees have been accompanied by an increase of regulations, advancing at different pace in each jurisdiction in the region.

Brazil has been stepping up its employee risk protection regulations since 2006, when it approved the Health and Safety at Work law and the 2017 reform of the labour law. The legal framework aims to protect both the employee by regulating including the use of protective equipment, establishing safety best practices, and economic benefits for risky jobs, and the employer, which by complying with regulations, reduces the risk of labour claims, regulatory fines, and inspections. In Colombia, a 1994 decree established a risk table from 1 to 5 for high-risk jobs. Depending on the risk scale, companies with higher occupational risks will have to comply with different safety requirements.

The regulatory environment is getting more complex but there is also a growing awareness of the reputational risks, the COO of a multinational food company operating across Latin America explained, “From my own experience in several multinational businesses, these corporations have the financial muscle to pay penalties and compensation, it’s a matter of financial planning. But it is very difficult to recover from poor reputational issues. And there’s more to that, you want your employees to be happy, this attracts talent and gives the firm a better reputation than any other advertisement you will probably overpay for.”

To comply with regulation, safeguard employees, and protect corporate reputation, large companies in the region are increasingly turning to specialist ESG risk management software. “New software products are streamlining all of our processes,” explained a sustainability manager at a large food conglomerate in Colombia, “everything is digitalised including environmental, health, and safety processes, data and inspections. It centralises data from all our systems, including mobile phones through apps, in an integral platform.”

“New software products are streamlining all of our processes everything is digitalised including environmental, health, and safety processes, data and inspections.”

Sustainability manager, food conglomerate, Colombia

Others are less sophisticated, “We don’t have software for ESG issues. In very general terms, I considered that everything is still very paper-based and perhaps something a little more sophisticated in Excel for follow-ups, but in a very precarious way. The industry has already seen that in these issues of quality, ESG, safety and operational risk, it is very risky because there is a lot of information loss and a lack of traceability. Having something more sophisticated will become a necessity but we have not found a solution yet.”

The development of these IT tools will contribute to improve the safety conditions of companies’ employees. As operational risks currently transcend physical integrity and with digital security transforming the concept of safety, the main challenge for companies is to identify, assess, measure, and mitigate new arising risks.

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