The 2024 Corporate Sustainability Revolution, and What 2025 Holds

Every year, we expect changes in different initiatives related to corporate sustainability but 2024 became a total turning point for companies of all sizes, regardless of where they are based, which is not at all surprising considering that the year 2030 can now be considered short term.

Changes in voluntary environmental, social, and governance disclosure frameworks, information now mandated in regional regulation and in international standards, new and more consolidated carbon pricing instruments, and the increasing attention of different groups of stakeholders are setting the pathways corporations will need to follow from now on.

For Latin America, this new reality is not different, but rather, even more challenging since those innovations are occurring globally and also locally in numerous countries in the region. Sometimes, such changes may represent overlapping requirements, and for companies starting to understand these numerous topics, it can be a complete puzzle to decipher. This is especially true for multinational companies that need to learn and manage new regulations from the European Union, the United States, the UK, and other international jurisdictions as well as domestic regulations.

But amid all the work behind keeping up with all the aforementioned developments, those organizations that started working years ago on their sustainability journeys are better positioned in the eyes of consumers as their preferred option for products and services. Equally importantly, they are purposely hedging themselves against important sustainability-related risks. In other words, early movers are starting to see a return on the investments and structural changes they made years ago.

Getting into the details for the most remarkable changes that took place in 2024, the European Union's Corporate Sustainability Reporting Directive (CSRD) became effective, with the first companies needing to start reporting in 2025 what happened in the previous fiscal year. This directive is not only important because it will be applicable to approximately 50,000 companies in the following five-year period but also because it sets an important reference for what other regions or countries will start doing very soon. 

While there is usually a time lag of years between what happens in terms of the development of formal standards and regulations outside and inside Latin America, this gap is narrowing quickly. For example, this year in Mexico, the Mexican Council of Financial and Sustainability Information Standards (CINIF), whose objective is to develop Financial Information Standards applicable to national territory, decided to issue new Sustainability Information Standards. In the first development stage, the CINIF issued two standards, the NIS A-1, a conceptual framework of the Sustainability Information Standards, and the NIS B-1, describing the new Basic Sustainability. While NIS A-1 intends to establish the basis for the preparation and disclosure of an entity’s sustainability information and will serve as the foundation for the preparation of business reports in Mexico, the NIS B-1 requires disclosing basic sustainability indicators, such as the greenhouse gases (GHG) inventory, energy consumption, sustainable water use, land use within or near biodiversity risk areas, waste management, investment in human capital, occupational health and safety, and corporate governance, among others. There are 30 indicators in total.

Also, on March 6, the U.S. Securities and Exchange Commission (SEC) adopted final rules for climate-related disclosures requiring public companies to report on climate risks, governance, and greenhouse gas emissions in their annual reports and registration statements. Although there is uncertainty about the timeline for the implementation of these rules due to legal proceedings, it seems inevitable that companies will need to report climate-related information sooner or later and, as indicated before, early movers are the ones that can better adapt to the regulation and use it in their favor.

Another regulatory development slowly approaching its full implementation phase and that is also relevant for Latin American countries is the Carbon Border Adjustment Mechanism (CBAM). The CBAM is a key EU climate policy instrument designed to prevent carbon leakage and encourage global decarbonization requiring importers of goods that generate significant quantities of carbon dioxide emissions during their manufacturing processes to report the emissions linked to those imported goods, as well as the carbon price paid in the country of origin. Whatever carbon price difference is not covered in the place of origin will need to be paid at the border of the EU so those goods can be accessed. In the beginning, this instrument will only cover cement, iron, steel, aluminum, fertilizers, electricity, and hydrogen, but the idea is that it will increase its scope to more goods in the future. The CBAM came into force on Oct. 1, 2023, and will continue in its transition phase until the end of 2025. It will not represent any financial burden until then, but as of 2026, the definitive period will start, seeking to ensure fair pricing on carbon-intensive imports.

As expected, the CBAM will incentivize countries outside the EU to do two things. First, to establish their own carbon pricing mechanisms in an attempt to accelerate the decarbonization of industries in their economies. Second, to find effective alternatives to put those resources into good use to help their countries meet their global decarbonization commitments. Failing to do either could put a country in a disadvantageous position as it would represent exporting products of similar quality to the EU but at a higher price.

Linked to this instrument, in Latin America, we are seeing a lot of dynamism in the creation or maturity of different carbon pricing instruments. Argentina, Chile, Colombia, Mexico, and Uruguay are examples of countries with a nationwide carbon tax. However, in the case of Mexico, we are also witnessing this accelerated adoption of new environmental taxes at a state level, with prices close to the US$30 mark. If the resources captured by these mechanisms are invested in innovation and efficiency, it will continue to position the Latin American region as one where important investments can land to create strong supply chains.

2024 also marked the year in which the new IFRS Sustainability Disclosure Standards became effective. Issued by the International Sustainability Standards Board (ISSB), the IFRS S1 establishes general requirements for disclosing sustainability-related financial information, while the IFRS S2 focuses specifically on climate-related disclosures. These standards aim to provide investors with useful and comparable information about the risks and opportunities a company is facing with regard to sustainability topics, and just like its predecessor the Task Force on Climate-related Financial Disclosures (TCFD), they comprise four core content areas: governance, strategy, risk management, and metrics and targets. 

Although the IFRS Sustainability Disclosure Standards seem far from compulsory in the Latin American region, currently a new resolution for issuers of securities and other participants in the securities market in Mexico is under analysis. The objective of such a requirement is that issuers report their sustainability-related risks and opportunities in alignment with the standards IFRS S1 and S2 and any other future standard issued by the ISSB. Once approved, companies will be required to report in 2026 their sustainability-related information corresponding to the fiscal year 2025.

The developments described above are just some of the key ones that took place in 2024 but there are many others we are going to continue discovering throughout 2025.

As mentioned a couple of times already, those companies who dared to take the first steps into their sustainability journeys some years ago are now in a much better place to face what evolved from voluntary to compulsory. But it is not yet too late for those that are realizing just now that they need to pick up the pace. There is now more experience in what works and what does not and tackling sustainability challenges requires a sense of community. This year can still be bright for those who dare to act swiftly.