Key takeaways:

Latin American companies have become more aware of sustainability, but many still face difficulties in implementing ESG reporting as required by IFRS S1, IFRS S2, and other new emerging regulations.
Latin American companies have become more aware of sustainability, but many still face difficulties in implementing ESG reporting as required by IFRS S1, IFRS S2, and other new emerging regulations.
Public sustainability reporting should provide information that accurately describes an organisation's ESG efforts as any data that conflicts with formal financial disclosures will raise red flags with regulators and investors.
Public sustainability reporting should provide information that accurately describes an organisation's ESG efforts as any data that conflicts with formal financial disclosures will raise red flags with regulators and investors.
Whether seeking to maintain business relationships, comply with mandates or even take their business to the next level to access premium markets, companies should focus their eyes on internal audit.
Whether seeking to maintain business relationships, comply with mandates or even take their business to the next level to access premium markets, companies should focus their eyes on internal audit.

In 2023, IFRS S1 and S2 were the trigger that led many Latin American companies to recognise the importance of stringent sustainability standards. By 2024, awareness of these issues has grown significantly, and companies understand that complying with environmental, social, and governance (ESG) criteria is not only a competitive advantage, but also a regulatory obligation in several countries in the region.

However, despite this advancement in understanding, effective implementation of these standards remains a challenge. New regulations in countries such as Brazil, Costa Rica, Chile, and Mexico oblige companies to start reporting their sustainability initiatives under the new IFRS S1 and S2 schemes, but many do not yet have the internal structures in place to comply with these requirements.

The challenge of implementation 

In some ways, the uncertainty is understandable. The growing importance of sustainability on the agenda of boards, investors, CFOs, regulators, and, more generally, all players in the global business ecosystem, demands that steps be taken to integrate these issues into the management and public reporting of companies that can respond to the new IFRS S1 and S2 standards that came into effect for periods beginning on 1 January 2024.

Challenges range from correct data collection to alignment with international standards such as IFRS S1, S2, or local requirements. The risks are not only based in regulatory compliance, but have reputational implications as well. Companies that fail to consolidate consistent sustainability control and reporting systems run the risk of losing the trust of investors and customers.

It is more than compliance, it is about business retention 

The pressure to implement these regulations is growing by the day in the region. It is no longer just a question of compliance but also of retaining business or losing it. A recent case involving a European customer importing meat from Uruguay illustrates the panic that arises when companies realise the deep scrutiny required in their supply chains. "The revelation that local suppliers may not be fully aware of the need for full reporting amplifies concerns and underlines the urgent need for education and capacity building initiatives," says Imam Zalinyan, Consulting and Sustainability Specialist at RSM in the Netherlands. "By proactively adopting ESG principles and integrating sustainable practices into their operations, these farms can position themselves as leaders in ethical sourcing and environmental management," he added.

"Rather than viewing ESG initiatives solely as obligations or compliance measures, forward-thinking farms can recognise them as strategic benefits that enhance their marketability and appeal to discerning European consumers," Zalinyan said. Indeed, by aligning with ESG considerations, meat farms in Uruguay or other Latin American countries can capitalise on the growing trend of conscious consumerism, where people are increasingly looking for products that align with their values and beliefs.

In addition, adopting ESG changes can also open doors to new opportunities for collaboration and innovation. European countries, with their increased focus on ESG considerations, are likely to be more demanding in their sourcing decisions, favouring partners that demonstrate a strong commitment to sustainability. By positioning themselves as ESG-compliant suppliers, Latin American meat farms can access premium markets and forge stronger and more resilient partnerships with European companies.

The role of the internal auditor

The role of the internal auditor has been strengthened, becoming a key player in ensuring the integrity of ESG reporting. The internal auditor is now aligned with new regulations and stakeholder expectations and has moved from being a key role in financial auditing to becoming an essential enabler of sustainable change. It is no longer just about auditing financial statements, but about ensuring that ESG reporting has the same level of rigour and oversight.

As highlighted by Liliana Mayorga-León of RSM in Colombia, "The role of the internal auditor has evolved: he or she must now lead the design of control frameworks that ensure the integrity of ESG data, helping companies adapt to new regulatory requirements". She also stresses that "The internal auditor not only ensures the veracity of the data, but also guides the company in selecting the appropriate control frameworks to manage ESG risks.”

As put by Florencia Felcaro of RSM in Argentina, "ESG reporting must have the same rigour as financial reporting, based on a robust internal control system, where the role of the auditor is key.”

"To face this challenge, it is essential to have specialised support. Companies that have not yet consolidated internal capabilities to address sustainability in a comprehensive way will need external collaboration or to develop expertise in key areas such as ESG data collection and verification. This implies that the role of the internal auditor is not only technical, but also strategic,” adds Paola Piña of RSM in Chile.

The takeaway

2025 brings with it a challenging outlook: companies that have not yet effectively addressed ESG reporting implementation will be left behind in an environment where sustainability is no longer optional. The first regulatory frameworks in Latin America are just the beginning of a global movement demanding transparency and greater corporate accountability for ESG performance disclosure and climate resilience. Companies that understand that the internal auditor is a key enabler of this transformation will be better able to meet future reporting challenges.

By independently verifying ESG data, auditors contribute significantly to organisations' sustainability efforts. As ESG reporting continues to become more widespread and required by more users, harnessing the power of the audit will be crucial for organisations seeking to drive sustainability in their business and environment. If this is the goal of your business, do not hesitate to contact RSM.