Navigating ESG compliance in smaller Latin American economies

Companies operating in smaller Latin American economies not only have to face the impact of the growing body of national ESG-related regulations, but also the potential reach and impact of EU legislation on their activities now that the EU’s Corporate Sustainability Due Diligence Directive (CS3D) has come into force.

The CS3D introduces due diligence and remedial obligations, in relation to human rights and environmental impacts, that will start to apply in mid-2027 but will need to be considered before that date. The obligations apply across a company’s whole ‘chain of activities’, which includes its own operations as well as the activities of its subsidiaries and business partners (BPs). This means that European legislation can be felt overseas by non-EU companies, including those operating in smaller Latin American economies, which has fed into conversations about the status of ESG-related regulations around the world. We have set out below some thoughts on the potential impacts of the CS3D in smaller Latin American economies, as well as a summary of ESG developments in the region.

Sustainability-related developments in smaller economies in Latin America

Taking Bolivia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Paraguay as a sample of smaller economies in Latin America, the reality is that none of them currently mandate non-financial reporting or general ESG-related supply chain due diligence. 

However, there have been a number of developments in relation to ESG in the region, including:

• Guatemala’s National Stock Exchange adhering to the United Nations Sustainable Stock Exchanges initiative in 2021, and its Board of Directors authorising a regulation that allows labelling of securities in Guatemala as green, social and/or sustainable. Its Law on Integral Waste Management and Recycling Promotion has also recognised environmental compliance principles present in other jurisdictions, such as the concepts of sustainable development, zero waste, the polluter pays principle, and the circular economy.
• Costa Rica ordering the staggered adoption of the International Sustainability Standards Board (ISSB) standards, following public consultation, starting in 2025 for listed companies and in 2026 for large taxpayers. Additionally, it established an Impact Stock Market, promoting investment in projects aimed at achieving the UN Sustainable Development Goals.
• Other countries considering ISSB adoption, including Bolivia, which issued a draft resolution in 2023 to adopt the standards in 2026, which is currently undergoing public consultation.
• Panama’s government and financial sector publishing on 27 March 2024 the first Sustainable Finance Taxonomy in Central America. In 2023, the country invited banks to prepare a plan for gradual adoption of the ISSB standards, depending on their resources.
• Paraguay approving a Carbon Credit Law in October 2023, which adds to regional efforts to regulate financial instruments for sustainable development. 

Preparing for conversations around CS3D implementation in smaller Latin American economies

The following are some tips for in-house counsel, legal departments and other stakeholders responsible for responding to CS3D implementation in smaller Latin American economies:

1. Identify the countries involved and whether or not they have implemented the various international standards and frameworks that helped to inform the development of the CS3D. These include the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
2. Identify countries’ existing rules or regulations related to the environment and human rights and assess whether there are any provisions that intersect with existing European ESG standards, including the CS3D. If none exist currently, follow upcoming regulation discussions to stay abreast of important developments.
3. Work with your law firm to start assessing the standards and accreditations that need to be met and consider any gaps that may exist between what you do currently (including any voluntary disclosures and practices) and what will be required in the future.
4. Develop an action plan for gradual implementation of the CS3D with subsidiaries and BPs, to support them in the process. A specific compliance team may need to be appointed.

For BPs operating in smaller Latin American economies, a helpful starting point may be to identify voluntary local guidance and frameworks relating to improving business practices and addressing environmental and human rights issues, as these might address some of the requirements contained in the CS3D. BPs can also look to agencies that have been set up to promote foreign trade to provide technical assistance and establish information forums and conversations that can be of assistance, as well as external counsel who can facilitate company-supplier dialogue and ‘translate’ requirements as needed. A helpful resource is the Mapping of the Regulatory Frameworks Enabling the Impact Economy & ESG Compliance in Latin America, developed by the Global Alliance of Impact Lawyers. 

Slaughter and May’s international strategy is based on close working relationships with market-leading independent law firms from across the world. Given the global nature of ESG regulations, we work with firms such as Aguilar Castillo Love in tracking international trends and providing ESG legal expertise rooted in a deep knowledge of local practice, procedures and culture.   

Aguilar Castillo Love is a full-service law firm with more than 80 lawyers working across Bolivia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Paraguay. Through legitimacy, cross-border business insight and forward-thinking legal expertise Aguilar Castillo Love provides security for its clients on highly complex and critical matters. Aguilar Castillo Love places the quality of its practice, the nature of its work and the value of its relationships ahead of its size. Aguilar Castillo Love is an instrument for business integrity through the law.