In order to achieve compliance, the entire Latin American business sector needs an audit, and that is a prospect that makes some leadership teams hesitant. There are still many in the region who view ESG as little more than a public relations gimmick. 

Shoring up corporate practices in this region will create as many challenges as opportunities and will require significant investments from participating businesses. However, the risk of non-compliance is high. For these organisations to thrive in the next generation, they will need to not only address these issues, but they will also need to make them a standard practice in all future business strategies. 

“Financial institutions are beginning to ask whether or not our clients have ESG policies in place,” says Juan Pablo Montero, Consulting Partner at RSM Argentina. “And if they do, these banks want to see their strategic plan around it. Different banks have started lending campaigns and access to credit with subsidised rates that are attractive to those who already have an ESG plan in place.” 

Business leaders must take the reins on this shift. The reality is that business leaders must recognise the threats inherent in dismissing ESG purely in favour of profit. A business that has not downsized its carbon footprint or shown a concern for its treatment of people may not last long in the coming decades. The consumers and investors of the future will be even less likely to give a pass to businesses who only have a mind for profit with little care for its impact. 

Righting the ship 

For ESG initiatives to truly take root with the businesses in Latin America, they need to encompass a ‘top-down’ mentality, with sweeping changes in leadership practices and corporate strategies that trickle down to the source. According to Piña, there is the notion of ‘the tone at the top,’ which refers to the goals the company makes in the boardroom, behind closed doors. 

The first step in implementing ESG is evaluation. Some Latin American companies have already begun an ESG journey; while some are much further along, there are others that have not incorporated ESG at all. It is important to understand what stage a company is at first. 

“The first step is to undertake a maturity diagnosis of your current ESG status and develop a remediation and implementation plan,” says Marcelo Conti, Consulting Partner at RSM Brazil. 

Once a business has figured out where along the ESG maturity scale they are, they can begin to figure out how to incorporate ESG into their strategies, values, and principles. Then they must strongly consider their brand identity and culture. Where do they see themselves in ten years? What is their culture? What are their goals? 

As businesses in Latin America begin asking about ESG, transformation will require a healthy amount of education. 

“Understand that ESG management is not about a specific area of sustainability, investor relations, or corporate communication,’ says Paola Piña, Partner Head of ESG at RSM Chile. ‘Rather, it is about understanding that the ESG strategy is a long-term commitment that must be inserted in the orchestrated work of the entire organisation”. 

Using the right carrot 

For all the talk of ESG as a performative measure, there are some thoroughly convincing selling points. For instance, North America is starting to explore the possibility of shifting its supply chains from East Asia to closer shores, due in large part to US political tensions with China. Latin America presents an enticing option. 

This is a move that could potentially inject billions of dollars into the economies of the region. That means that ESG compliance is a non-negotiable for the Latin American industrial sector. In this sense, the adoption of ESG practices must seem less like a public relations gimmick and more like a full-blown growth strategy. 

Another benefit is insight. As a ‘late adopter,’ Latin America will have the opportunity to observe and learn from the growing pains experienced by Europe, North America, and Asia as they move forward with and implement their own ESG transformations. This could very well translate into a much smoother transitional period, thanks to the lessons learned from the other regions. 

Nonetheless, time is still of the essence. The flow of international investment is already following the current that ESG is leaving in its wake. With billions of dollars of productivity on the line, Latin American economies can scarcely afford to play ‘wait and see.’ 

The way forward 

There is a growing global movement to hold businesses accountable for their behaviour – in the boardrooms, on the factory floors, and on the streets and rivers and fields of the communities where they operate. At the same time, many companies are wondering why they are being asked to concern themselves with ESG goals when there are so many other issues that require attention: global pandemics, rising inflation, military conflict, energy shortages, and the ever-present threat of recession. 

Fortunately, the narrative has started to show signs of shifting in recent years. “Currently, there is more openness and relevance to the discussion of ESG issues, something that years ago was unthinkable,” says Montero. “Consumers are increasingly interested in knowing which corporation they are buying from beyond the product itself. They want to know what the company's values are. They want to know the impact it has on society and the environment.”. 

It seems the cultural tide in Latin America is beginning to turn. Investors have partnered up with consumers, creating a powerful lobby for the ESG ethos that is backed by a significant war chest. It will not be long before business leaders join the charge to enact real change on a continental scale. Only time will tell, but for the moment, it appears that Latin America stands at the threshold of a potentially transformative era.