São Paulo, Brazil – According to a new report published by RSM International, companies in Latin America have faced particular challenges and opportunities in taking ESG standards into business operations. Regarding the “ESG Latin America Landscape 2024” survey, which focuses on 200 companies in the region, the share shows that only 46% of the companies have a formal sustainability policy or strategy. This result tends strongly to show deep gaps in ESG commitment while every country has its unique challenges within it because it is merging with new global standards, especially IFRS S1 and S2 on sustainability.
Country-Specific Insights: Leaders and Laggards
Latin America is a very interesting region due to the heterogeneity in ESG approaches. Leaders in ESG maturity are Chile and Brazil, and Mexico and other countries of Central America show great promise but face huge challenges.
All areas of Brazil are related to environmental initiatives, especially social impact measurements, which are essential for the role of the Amazon climate regulators. However, even in the leadership category of Brazil, 47% of the companies highlight that creating and tracking ESG KPIs is the main obstacle to achieving their sustainability targets. As they cannot measure it, companies cannot track their performance, understand where they need to improve, and report their performance on ESG to stakeholders and regulators.
Chile is also the regional leader in adopting formal ESG policies, with 66 percent of respondents saying they have defined sustainability strategy. However, Chilean companies still have to contend with barriers, for 38 percent of firms state a lack of training and resources as a barrier to further progress. The absence of such resources has then limited the development of strong ESG frameworks, even among businesses with a high level of commitment towards sustainability.
Mexico, at just 32 percent of companies having a policy on sustainability, remains a future change. New legislation and the future administration led by Claudia Sheinbaum is going to propel ESG into mainstream in this country and thus set up Mexico for swift improvement in sustainability. Meanwhile, only 25 percent of these Mexican corporations publish information related to the ESG activities and practices that they’ve implemented.
Colombia leads the region in terms of public ESG reporting, with 51% of the reporting companies disclosing sustainability information to stakeholders. Companies in Colombia also face challenges in coordinating towards a fragmented ESG standard, making it complicated to keep the reporting seamless and in alignment with global frameworks.
Central America has a strong focus on ESG, with 51% of companies having a Head of Sustainability. Only 45% have written strategies, though, which indicates that while awareness is increasing, the vast majority of businesses are only at the basics of more structured efforts at ESG.
Challenges Facing ESG Adoption in Latin America
The RSM survey unveils multiple key issues that prevent companies in Latin America from embracing ESG principles entirely. Amongst the most important ones are the following: there is a disconnect with the priorities of C-suite, insufficient training, and lack of internal expertise. In addition, a record 57% of companies across the region report falling behind on mandatory sustainability reporting, pointing to a need for stronger regulatory guidance and organizational alignment.
According to Eileen Turkot, Regional Leader for Latin America at RSM International, “When we analyze our findings, it is striking how mature the adoption of ESG criteria across different Latin American countries has been. We find that Brazil is perhaps most developed in measuring its social impact, while Mexico still has a lot to be done regarding sustainability as a strategic function of organizations.”. It reflects the different realities and challenges each country is facing in aligning to the global standards.
The most cited challenge of building and tracking KPIs, 30% of companies don’t set clear, measurable targets for ESG performance. Moreover, 25% of the companies report difficulties in their measurement capacities of environmental and social impacts limiting them from demonstrating tangible benefits from their efforts at sustainability.
Growth Opportunities in ESG with Mindset Change
There are huge growth opportunities in ESG across Latin America considering the challenges discussed above. According to the report, ESG commitments need to be assimilated into regulatory compliance as well as business strategies for regulators but primarily to enhance long-term profitability. Noted Paola Piña, Head of RSM’s ESG Hub in Latin America, “From the results of our survey, we would be promoting businesses that view sustainability is not just a regulatory requirement but as a determinant of long-term profitability and access to more favorable financing.”. This directly appeals to the heart of a corporate financial strategy, hence showing maturity in understanding and valuing ESG development”.
It is against this background that the RSM report challenges companies in Latin America to think beyond sustainability as a checklist of compliance. Rather, it should be considered an investment opportunity en route to financial performance. When more of them are forced to consider the ESG factors by the intense pressure from global investors, companies that embrace sustainability are better placed for access to capital and will also be competitively positioned in the marketplace.
A long way still to go for ESG in Latin America:
The “ESG Latin America Landscape 2024” survey paints a complex picture of ESG adoption in Latin America: countries are making significant progress in some instances, while others are just beginning their sustainability journeys. Consider that challenges such as insufficient resources and KPI monitoring persist while others, such as executive disconnection, remain common – as evidenced by the success stories of Chile and Brazil, which show how local leaders can take cues from other nations.
This involves changing regulations, growing interest among investors, and a more balanced understanding of how ESG benefits everyone involved. It is poised for transformation in responsible business practices in Latin America. The report urges companies to take proactive measures to join global ESG standards in contributing better to the sustainable, competitive regional economy.