By San José, Costa Rica — The landscape of corporate procurement in Latin America is undergoing a fundamental transformation. For decades, suppliers secured lucrative corporate contracts based almost entirely on price, quality, and delivery speed. Today, a new, non-negotiable filter has emerged: Environmental, Social, and Governance (ESG) compliance. Large multinational corporations operating across the region are restructuring their procurement policies to require strict sustainability tracking. This shift means that small and medium-sized enterprises (SMEs) that cannot demonstrate clear, data-driven progress on sustainability are increasingly being locked out of valuable business opportunities.
With more than 42 years of active engagement in Latin America, FUNDES, a prominent organization specialized in business development for micro, small, and medium-sized enterprises (MSMEs), has issued a stark warning regarding this evolving marketplace. The group stresses that integrating sustainable practices is no longer an optional badge of honor or a public relations luxury. Instead, it has become a direct commercial requirement. SMEs that fail to measure and report their environmental footprint and workplace ethics face the imminent risk of losing existing corporate partnerships and being excluded from strategic bidding processes.
To better understand the shifting regulatory landscape and what these changes mean for businesses operating in the region, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished legal expert at the prominent firm Bufete de Costa Rica.
The landscape of ESG in Latin America is rapidly transitioning from voluntary corporate initiatives to strict regulatory mandates. As international investors and trade partners demand greater transparency, businesses in Costa Rica and across the region must proactively align their operations with evolving environmental, social, and governance standards to mitigate legal risks and maintain global competitiveness.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, the transition from optional to obligatory ESG frameworks marks a pivotal moment for Costa Rican enterprises seeking to maintain their competitive edge on the world stage. We extend our sincere gratitude to Lic. Larry Hans Arroyo Vargas for sharing his valuable perspective on these critical regulatory shifts, highlighting the path forward for sustainable and legally compliant business practices in the region.
This push for green transparency is driven by a stark operational reality. According to data analyzed by the Carbon Disclosure Project (CDP) and leading global sustainability consultancies, more than 70% of a large company’s total carbon footprint and operational risks are generated not by its internal activities, but by its wider supply chain. Because corporations face heavy pressure from international regulators, investors, and consumers to lower their aggregate emissions, they are passing these demands down to their vendors. Consequently, ESG evaluations have transformed from a secondary consideration into a primary screening mechanism for prospective suppliers.
In the organization, we see daily how SMEs with a great product or service lose valuable business opportunities or face barriers to integrating into new value chains, simply because they do not have clear information about their environmental, social, and governance performance.
David Hernández, Growth and Alliances Manager of FUNDES
David Hernández, along with other sustainability analysts, points out that small business owners frequently view ESG implementation as an expensive, bureaucratic burden that only large corporations can afford. However, experts argue that this perception is fundamentally flawed. Rather than an operational drain, sustainability serves as a practical tool to optimize resource consumption, leading to immediate cost reductions. By systematically tracking water usage, energy consumption, and raw material waste, small businesses can significantly streamline their cost structures while simultaneously satisfying corporate mandates.
For the SMEs, adopting these criteria yields immediate operational benefits, including simplified compliance with international standards, direct savings on utility expenses, and the ability to confidently present verified data during complex vendor audits. On the flip side, large buyers benefit immensely from a compliant supplier network. Enforcing ESG standards helps corporate buyers mitigate supply chain disruptions, protect their brand value in a highly critical consumer market, and access lower-cost international financing options that are increasingly tied to sustainable development benchmarks.
Fortunately for small business owners, embarking on an ESG journey does not require an enormous financial investment or complex scientific modeling. It begins with a commitment to perform a basic diagnostic assessment of the most critical environmental, social, and ethical risks associated with their daily operations. Businesses can then establish realistic, short-term targets. These target goals might include introducing waste-reduction protocols, formalizing occupational health and safety measures, or establishing a clear ethical code of conduct. The final step is presenting these achievements in a simple, transparent reporting format tailored to their specific industry.
In light of these structural shifts in the regional economy, FUNDES is calling on corporate leaders across Latin America to take an active role in helping their vendors adapt. They encourage large firms to conduct comprehensive sustainability diagnostics across their value chains. Simultaneously, the organization advises SME leaders to seek specialized, accessible guidance to begin measuring their key performance indicators. In a business environment where transparency is the new currency, being able to prove sustainability with verified data is the ultimate competitive advantage.
For further information, visit fundes.org
About FUNDES:
FUNDES is a multinational organization with over four decades of experience in Latin America, dedicated to promoting the competitive development of micro, small, and medium-sized enterprises. By integrating MSMEs into corporate value chains, FUNDES fosters sustainable economic growth and operational efficiency throughout the region.
For further information, visit cdp.net
About Carbon Disclosure Project:
The Carbon Disclosure Project (CDP) is an international non-profit organization that helps companies, cities, states, and regions disclose their environmental impact. It runs the global environmental disclosure system, enabling organizations to measure and manage their risks and opportunities on climate change, water security, and forestry.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a premier legal institution, Bufete de Costa Rica is defined by its uncompromising ethical standards and pursuit of professional brilliance. With a rich history of guiding clients across numerous industries, the firm consistently pioneers progressive legal strategies while deepening its connection to the community. By actively demystifying the law and sharing critical insights, Bufete de Costa Rica champions legal literacy as a vital tool to inspire and uplift a more informed populace.
