SMS Latinoamérica - Case Study: Sustainability Standards LATAM
The new Sustainability Standards in the Latin American context
Partners and Practice in Heads at the Sustainability Department at SMS discuss the efforts in LATAM to converge sustainability standards to form a global baseline that promotes transparency, integrity, and comparability of non-financial information.
The landscape of sustainability management and reporting is evolving rapidly. Over the past few decades, several standards, frameworks, and regulations have emerged, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International <IR> Framework, and the Taskforce on Climate-Related Financial Disclosures (TCFD).
Recently, efforts have been made to converge these standards to form a global baseline that promotes transparency, integrity, and comparability of non-financial information. In this context, the IFRS Foundation created the International Sustainability Standards Board (ISSB), which in June 2023 issued the IFRS S1 and S2 standards, integrating elements of SASB, TCFD, and the <IR> Framework. Just like the International Financial Reporting Standards (IFRS), the implementation of these sustainability guidelines varies between countries, with some adopting them directly and others adapting them to their local realities.
Developments in Latin America
In Latin America and the Caribbean, significant steps are being taken toward adopting a global baseline for sustainability information, with several countries taking concrete measures in this direction. At this moment (in a very dynamic context) these are the countries most advanced in adopting the ISSB standards:
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The standard-setting body of Bolivia, CTNAC, issued Resolution 011/2024 in April 2024, adopting the ISSB Standard starting in 2027, while also allowing its voluntary use earlier.
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The standard-setting body of Costa Rica, CCPCA, issued Circular 33- 2023 in January 2024, adopting ISSB Standards in a phased manner for regulated companies starting in 2025 and for large taxpayers starting in 2026.
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The capital markets regulator of Brazil, CVM, issued Resolution 193 in October 2023, which requires public companies to report using ISSB Standards starting in 2026.
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The standard-setting body of Mexico, CINIF, began a public consultation in November 2023 on the proposed adoption of the ISSB Standards, with companies expected to voluntarily report on sustainability issues using the ISSB Standards.
Main challenges in the region
Capacity Gap
There is a significant capacity gap in Emerging Economies when it comes to producing sustainability information. To be useful as a valuable tool, the information produced must be of high quality, comparable, and verifiable.
Failing to recognise and address this capacity gap means overlooking a crucial segment of the global economy, including a significant portion of manufacturing companies and major contributors to climate change. Closing this capacity gap is one of the prerequisites for a smooth transition to adopting a Global Baseline that serves as a useful tool for decision-makers and investors.
This capacity gap is reflected when comparing the quantity and quality of sustainability information produced between Developed Economies and Emerging Markets. This difference is illustrated in the following table:
|
|
|
|
France | 100% | 96% | |
Germany | 94% | 63% | |
Italy | 98% | 73% | |
Spain | 96% | 79% | |
| 44% | 35% | |
87% | 21% | ||
62% | 34% |
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Lack of Data Infrastructure and Comparability
Organisations that measure and report their impact face difficulties in accessing local public benchmarks, statistics, and protocols. This absence of public data forces companies to use guidelines or sources from other countries, leading to a lack of comparability between reports due to the large number of assumptions and different protocols used when compiling the information. Finally, this can excessively punish Emerging Market companies because the information they have to produce needs to be aligned with standards from Developed Markets, designed for a different context generally with better access to technology, capital investment and other resources (for example, SASB standards in their application guidance often refer to guidelines and regulations of United States agencies, which consider the practices and standards of that country).
Soledad Parrondo,
ESG Reporting Specialist of the Sustainability Department at SMS
Adrián Scaserra,
ESG Reporting Specialist of the Sustainability Department at SMS
Inclusion of SMEs and Informal Economies
As The Global Steering Group for Impact Investment states in its report “Impact Transparency from The Ground Up”5, sustainability reporting poses a particular challenge for micro, small, and medium sized enterprises (MSMEs). Unlike large corporations, these companies often face difficulties in internalizing and prioritising the importance of transparency in social and environmental impact.
Globally, only 13% of SMEs have adopted sustainability strategies6, facing obstacles such as a lack of human, technical, and financial resources, as well as an insufficient regulatory framework and limited understanding of the importance of sustainability reporting. These challenges are more acute in the "Global South," where many MSMEs operate in a survival mode, struggling to remain operational amidst economic adversity and instability.
Additionally, informal economy SMEs, which represent a significant portion of emerging markets, play a crucial role in the value chains of large corporations as suppliers or customers.
These businesses risk being excluded from global value chains due to their inability to meet growing sustainability requirements (such as reporting on Scope 3 emissions).
In Latin America, for example, 99.5% of businesses are SMEs, generating 60% of total employment and contributing 25% to GDP7. It is crucial to focus on this issue, with large corporations playing a key role in integrating SMEs into their value chains. By providing support through knowledge transfer, financial investment, and market access, these companies can strengthen SMEs' capabilities and resilience, fostering innovation, efficiency, and growth. This inclusion benefits not only large companies, allowing them to access specialised products and services, but also contributes to local economic development through job creation, skills improvement, and entrepreneurship promotion.
Julian Costábile,
Partner of the Sustainability Department at SMS
Conclusion
Sustainability management and reporting has become an urgent necessity, not just an option. The lack of data infrastructure, capacity gaps, and growing regulatory demands represent significant challenges, particularly in emerging countries, but they also open the door to innovation and new forms of collaboration. Companies that manage to adapt to these frameworks will not only meet international standards but will also position themselves as leaders in long-term value creation.
In this regard, large corporations and governments should play a key role: they must facilitate the integration of SMEs into global value chains through knowledge transfer, financing, and access to new markets. By doing so, not only is local economic growth fostered, but it also contributes to building a more sustainable and equitable future.
Companies that take on the challenge of transparent and responsible reporting will be better positioned to face a world where sustainability is not just a goal but the path to resilience and success. However, this journey cannot be undertaken alone. By combining efforts between governments, large corporations, international organisations and professional spaces, effective knowledge transfer, adequate investment, and market access can strengthen the capacities of SMEs and other local actors.
1 IFAC (2021), The State of Play in Sustainability Assurance
2https://sustenomics.com/solo-el-44-de-las-empresas-listadas-en-la-cnv-presentaron-algun-informe-vinculado-a- la-sustentabilidad/
3 Farfán Liévano, María Angelica (2022), Estado de los reportes ESG en las Empresas inscritas en la Bolsa de valores en Colombia. Marcos, guías y nuevos estándares
4Meljem Enriquez de Rivera, Sylvia; Hernández Gálvez, Carlos (2022) Estado Actual de los Reportes Corporativos de México.
5https://www.gsgimpact.org/resources/publications-and-reports/impact-transparency-from-the-ground-up/ https://www.gsgimpact.org/resources/publications-and-reports/impact-transparency-from-the-ground-up/
6 UN Global Compact (2022). “SME Engagement Strategy”. Available at: https://unglobalcompact.org/library/604
7 Muiruri Muriithi, S. (2017). African Small and Medium-Sized Enterprises. Contributions, challenges and solutions. European Journal of Research and Reflection in Management Sciences. 5 No. 1, 2017.
Main image: ESG Reporting Specialists team of the Sustainability Department at SMS