Sustainability as a driver of profitability and growth in Latin America

In recent years, sustainability and ESG (environmental, social and governance) criteria have become a key pillar of global business strategy. As consumer, investor and government expectations rise, companies must adapt to new regulations to remain competitive. The survey released last November by RSM Latin America indicates that 57% of organisations are not ready to adopt global sustainability standards but the vision within Latin American companies is changing.

Current trends in sustainability and ESG in the region

The integration of ESG criteria into Latin American business strategies has evolved significantly. Today, many companies are adopting a dual materiality approach, combining the financial and non-financial impacts of their activities. There is a growing awareness of decarbonisation and supply chain transparency, driven by both regulations and consumers. In addition, the circular economy and carbon footprint measurement have become key topics in companies' strategic sustainability plans.

Although Central America follows a similar pattern to Latin America in ESG issues, there are important nuances to note. According to the November survey, 51% of Central American companies have a sustainability manager or a senior position dedicated exclusively to this area, compared to the Latin American average of 43%. However, only 45% have developed a formal sustainability strategy. There is a great opportunity to make progress in creating clear and solid policies.

In the last year, we have seen a shift in the region: sustainability has moved from being perceived as a social responsibility to becoming a strategic value driver. Regulatory pressure, as well as investor and consumer demands, has increased the importance of achieving sustainability goals. Companies are now focused on complying with regulations such as IFRS S1 and S2 and addressing climate risks, with a clear drive towards achieving net zero emissions commitments.

How businesses can prepare for the impact of new regulations

New regulations, such as the IFRS sustainability disclosure standards, are putting pressure on companies to be more transparent and accountable about their ESG performance, especially in the transition to decarbonisation. Companies that fail to adapt to these regulations risk damaging their reputation and losing access to investment.

To comply with emerging regulations, the first step is to assess dual materiality and establish key performance indicators aligned with the regulations. In addition, investing in team training and the use of digital tools to improve measurement and reporting are critical steps.

Investors are also increasingly prioritising responsible investments, demanding more detailed information on companies' ESG performance. Green bonds and ESG funds are booming, and institutional investors are seeking to reduce risks by preferring companies committed to sustainability. ESG metrics and ratings are crucial for assessing investment risks and opportunities. With the implementation of standards such as IFRS S1 and S2, these metrics will become even more essential, allowing investors to make informed decisions about companies that effectively manage ESG risks.

There is also the case of technology’s role in all of this. Digitalisation and emerging technologies such as blockchain, artificial intelligence (AI) and the Internet of Things (IoT) are transforming companies' ESG strategies. Blockchain, for example, can improve traceability and transparency in the supply chain, while AI can help to optimise energy efficiency and reduce waste. Digitisation also facilitates real-time data collection and analysis, improving accuracy and transparency in ESG reporting and enabling companies to comply with global disclosure standards.

Finally, communication is absolutely key. Consumers, especially younger generations, are showing a clear preference for brands that adopt sustainable practices. In addition, investors, governments and NGOs are putting pressure on companies to be more transparent and accountable for their social and environmental impact. To avoid greenwashing, companies are turning to digital platforms and social media to transparently communicate their ESG progress. They are also adopting radical transparency strategies and creating sustainability committees to maintain continuous communication with stakeholders.

Obstacles for Latin American businesses on their ESG journeys

The main challenge companies face when integrating sustainable practices is the lack of specialised skills and the need for upfront investment to transform processes towards sustainability. This is not to mention the fact that adapting to complex regulations and consistent reporting is also a significant barrier.

In the next 5-10 years, I expect ESG to evolve beyond just an act of compliance and become a key driver of business competitiveness. Companies that do not effectively integrate ESG into their operations will face regulatory pressures and lose access to certain markets and investors. Innovation in renewable energy, carbon capture technologies and nature-based solutions will be key areas for advancing corporate sustainability. In addition, digitalisation that supports ESG reporting and the ability to track progress in real time will be crucial.

There is no single recipe for ESG success. Each company must build its sustainability strategy considering its specific challenges, its stakeholders, and the context in which it operates. Some may excel in water management, others in diversity and inclusion, or in decarbonisation. The key to success lies in collaboration and transfer of best practices. Sustainability not only improves environmental performance, but also profitability and resilience, strengthening relationships with stakeholders, consumers and employees.

Get in touch with Paola Piña, ESG Hub Leader at RSM Latin America to understand how your company can confidently move forward on sustainability issues.