ESG Comparative Guide - Mondaq Chile - Blogs - VLEX 910904040

ESG Comparative Guide

Published date21 September 2022
Subject MatterFinance and Banking, Corporate/Commercial Law, Employment and HR, Environment, Litigation, Mediation & Arbitration, Real Estate and Construction, Energy and Natural Resources, Corporate and Company Law, Shareholders
Law FirmBertrand-Galindo Barrueto Barroilhet Abogados
AuthorMr Milenko Bertrand-Galindo A. and Gabriela Püschel

1 Legal and enforcement framework

1.1 What regulatory regimes and codes of practice primarily govern environmental, social and governance (ESG) regulation and implementation in your jurisdiction?

In Chile, ESG standards and regulations are not yet systematically organised and are enshrined in many different instruments - including the Constitution, which recognises all human rights established in international treaties ratified by the state and constitutional guarantees to the environment, occupational safety and the right to health, among other rights.

The Financial Market Commission (CMF) also plays a key role in setting ESG standards. Its General Standard 461, issued on 21 November 2021, establishes progressive disclosure obligations in relation to corporate governance, supplier management and regulatory compliance and sustainability indicators.

In view of the above, the most relevant regulatory regimes and codes of practice governing ESG in Chile are as follows.

Environment: In relation to environmental compliance, Chile's legal framework includes:

  • Law 19,300 on the General Bases of the Environment;
  • Law 20,417, which established the Ministry of Environment, the Environmental Evaluation Service and the Superintendence of Environment;
  • Law 20,600, which established the environmental courts; and
  • Decree 40 of the Ministry of Environment approving the regulations of the Environmental Impact Assessment System, which includes norms on indigenous consultation during the environmental assessment process.

Social: In relation to social matters, relevant legislation includes:

  • Chile's Labour Code, which regulates both individual and collective workers' rights;
  • Law 21,015, which encourages the inclusion of people with disabilities in the labour market;
  • Law 16,744, which provides for social insurance of occupational hazards; and
  • Supreme Decree 66/2013 of the Ministry of Development, which establishes regulations for the general application of the indigenous consultation procedure.

Governance: Key regulations include:

  • Decree Law 3,538, which establishes the CMF;
  • Law 19,913, which regulates the Financial Analysis Unit;
  • Decree Law 211, which regulates the National Economic Prosecutor's Office - the body in charge of antitrust prosecution; and
  • Law 20,393, which is of crucial importance as it regulates the criminal liability of legal entities, establishing a crime prevention model, among other things.

1.2 Is the ESG framework in your jurisdiction primarily based on hard (mandatory) law and regulation or soft (eg, 'comply or explain') codes of governance?

Basic ESG rules have mandatory application, such as:

  • the labour laws;
  • the disclosure obligations of the CMF;
  • the provisions on the environmental assessment of investment projects; and
  • the provisions on the criminal liability of legal entities.

However, further regulation and standards are primarily based on soft codes of governance.

Also, as mentioned, the CMF's General Standard 461, which requires regulated entities to provide ESG information, compels companies to report on their compliance with these obligations to the CMF. This standard is progressive, as the date of its enforcement depends on the equity of the company.

Law 20,393 on the criminal liability of legal entities does not require corporations to implement crime prevention systems, but establishes a presumption of innocence for companies that have duly implemented such systems if one of the crimes established in this law is committed by one of its collaborators.

In Chile, there are no general mandatory reporting requirements on ESG issues, other than those applicable to companies regulated by the CMF and, in the case of investment projects, the obligation to report on their compliance with their respective environmental authorisation. However, much stricter reporting and compliance ESG protocols have been incorporated by Chilean companies in recent years, due to market pressures arising from supply chain obligations, financial international requirements and increased consumer awareness on these matters. International reporting indexes have gained great importance, including those recognised by the Santiago Stock Exchange in its alliance with RobecoSAM, such as:

  • the Dow Jones Sustainability Chile Index; and
  • the Dow Jones Sustainability MILA Pacific Alliance Index.

1.3 Which bodies are responsible for implementing and enforcing the rules and codes that make up the ESG framework? What powers do they have?

Environmental: Compliance with environmental standards is supervised by three main institutions.

The Environmental Assessment Service (SEA) assesses environmental risks and establishes the mitigation, reparation and compensation measures required for any investment project prior to its authorisation. Numerous other administrative agencies may also participate in this assessment process, such as:

  • the Water Regulation Agency;
  • the National Monuments Council;
  • the National Corporation for Indigenous Development (CONADI);
  • the National Geology Service.

During this process, the SEA also organises:

  • a citizen participation process; and
  • together with CONADI, an indigenous consultation process, if the project might have a direct impact on indigenous communities.

Once a project has received environmental authorisation, compliance with that authorisation - and with the environmental regulations in general - will be supervised by the Superintendency of the Environment. Disputes arising from the abovementioned processes as well as other environmental infringements are reviewed by the environmental courts.

Social: In labour matters, the Labour Directorate both establishes regulations and supervises employers' compliance with labour laws. The labour courts have jurisdiction over all labour disputes, including action of labour guardianship over violations of the constitutional guarantees of workers within the framework of their labour relations.

Governance: The CMF has the power to set standards for the preparation and presentation of the various financial statements required from all entities under its supervision. The CMF may conduct investigations and sanctioning procedures, as applicable. The Financial Analysis Unit coordinates the national strategy for prevention and combat of money laundering and terrorist financing. The National Economic Prosecutor's Office investigates and prosecutes all crimes relating to antitrust, which are decided by the antitrust courts.

1.4 What is the regulators' general approach to ESG and the enforcement of the ESG framework in your jurisdiction?

In general, there is a trend towards greater regulation of ESG issues in Chile. In this regard, recently approved Law 21,455 imposes climate change disclosure obligations on investment projects, as well as on companies regulated by the CMF or the Pensions Superintendency. This law also sets out emissions standards for greenhouse gases.

The Water Code was recently modified to introduce the possibility of constituting water rights for environmental conservation purposes. Among other goals, this reform aims to foster private initiatives for the development of environmental conservation projects, either as compensatory measures for environmental impacts or as part of sustainable development plans.

In terms of governance, there is likewise continuous progress towards stricter requirements, especially in relation to disclosure and ESG reporting. As from 2022, the CMF requires the submission of ESG compliance information as part of companies' mandatory financial reporting. This obligation will apply progressively to all companies according to their equity. In labour matters, since 2018, companies with more than 100 employees have been required to ensure that their labour force includes at least 1% of employees with disabilities.

In relation to the environmental assessment of investment projects, both the administrative agencies and the courts have progressively included, through administrative resolutions and jurisprudence, new considerations relating to climate change, water availability and respect for local traditions, among other things.

Law 20,393 on the criminal liability of legal entities is continually updated. It now includes in its catalogue of crimes conducts relating to arms control, human trafficking and cybersecurity.

In September 2022, the draft of a new constitution was rejected through a democratic plebiscite. However, it is expected that the constitutional discussion will continue, and that in the near future a new constitution which strengthens Chile's ESG regulatory framework will be enacted.

1.5 What private sector initiatives have been launched in your jurisdiction to complement the ESG framework?

As Chile is a leading mining country, several private and public-private initiatives have been developed in this sector in recent years. The Mining Council, as the industry's leading private association, has established sustainable development principles aligned with the United Nations' Sustainable Development Goals, as well as climate change principles. There are also initiatives such as the National Women and Mining Roundtable and Mining Transparency. The National Women and Mining Roundtable aims to encourage the inclusion of women in the industry. Launched in 2018, it is promoted by the Ministries of Mining and Women's Affairs and is actively supported by mining companies. Mining Transparency is a project that seeks to enhance the transparency of...

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