ESG Comparative Guide -

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 information in the mining sector, with the aim of fighting corruption and developing practices that promote integrity both in the mining market and in its links with the public sector and society. This project is promoted by Chile Transparente – a non-governmental organisation that works in Chile with Transparency International – in collaboration with the National Mining Society and the Mining Council, among other private mining associations.

In the construction sector, the Chilean Chamber of Construction (CChC) has developed several initiatives relating to ESG, such as the CChC Sustainable Business Award, which distinguishes member companies that stand out for good practices relating to workers' welfare, occupational health and safety, suppliers and customers, communities, the environment, governance and innovation. Additionally, the Construye 2022 Women's Award highlights and promotes the participation of women in the construction industry.

Generally speaking, the publication of sustainability reports of private companies has increased exponentially in the past few years. Corporations have started to publish increasingly comprehensive reports on their compliance with ESG standards and are incorporating these strategies and goals into their corporate principles. Boards of directors have very slowly but steadily begun to ensure that women are represented in their composition.

A series of international certifications and indexes relating to corporate sustainability have become increasingly relevant at the business level in Chile. They include:

the Dow Jones Sustainability Index;
the Global Reporting Initiative;
the International Council on Mining and Metals Social and Economic Framework;
the International Integrated Reporting Council Model; and
different certifications such as B Corporation certification and ISO 26000 certification.

2 Scope of application

2.1 Which entities are captured by the rules and codes that make up the principal elements of the ESG framework in your jurisdiction?

In Chile, the applicable ESG standards regulate both public and private companies, including foreign entities operating in the country.

In principle, the environmental regulations of the Environmental Assessment Service and the Environmental Superintendency apply to all projects with the capacity to produce an impact on the environment, as well as the population.

The entities under the supervision of the Financial Market Commission (CMF) that are obliged to report on ESG matters and incorporate this information in their corporate reports include:

persons issuing or brokering publicly offered securities;
commodities exchanges, securities exchanges and stock exchanges;
associations of securities brokers and the securities operations that they carry out;
funds that the law subjects to the CMF's supervision and the companies that administer them;
corporations and limited partnerships by shares that the law subjects to the CMF's supervision;
insurance and reinsurance companies, as well as insurance intermediaries;
banking companies, as well as companies engaged in the issuance and operation of credit cards, payment cards with the provision of funds or similar systems; and
savings and credit cooperatives that the law subjects to the CMF's supervision.

Law 20,393 on the criminal liability of legal entities also applies to all private corporations as well as state-owned companies. Labour laws apply to all workers and employers, with some ESG regulations such as mandatory inclusion policies applicable only to companies with a certain number of workers.

2.2 How are entities in your jurisdiction that are not subject to specific rules or codes implementing ESG?

While some general ESG standards are applicable to most entities, more specific and demanding standards are usually set for corporations with:

large equity;
relevant earnings;
a large number of employees; or
a listing on the stock exchange.

While some ESG obligations – such as the disclosure obligations set by the CMF – are progressively applicable according to companies' equity, most small and medium-sized companies have no obligation to systematically report, assess or comply with more advanced ESG standards; although these are increasingly required by the markets and by consumers alike. Due to financial market or consumer pressure, among other things, many companies are progressively incorporating standards based on methodologies such as the Global Reporting Initiative Standards, the International Integrated Reporting Council Model or B Corporation or ISO 26000 certification.

Many companies are also encouraged to implement reporting standards in order to:

obtain financing, especially abroad;
reduce their social-environmental risks and litigation risks;
improve their position in terms of environmental regulation;
access new markets; and
enhance the social licence of their brands.

The traditional way to report such commitments and compliance therewith is through companies' sustainability reports, which are published annually.

2.3 What are the principal ESG issues in your jurisdiction that are either part of the ESG framework or part of the implementation of ESG?

Key ESG issues in Chile currently concern:

access to water;
citizen and indigenous participation or consultation in relation to investment projects;
climate change; and
pollution.

Many of these issues were discussed during the drafting of a new Constitution. Although this proposal was rejected, it highlighted the public interest in ecological considerations, including an emphasis on the protection of nature and even the recognition of nature as the subject of rights itself, and the requirement for economic activities to be compatible with the protection of nature.

This trend is also reflected in the recent reform of the Water Code, which came into force in April 2022. Among other things, the new code has limited the water use rights over which holders have ownership. The new code views water as a public interest good, essential for human consumption and sanitation and the preservation of ecosystems. The reform also:

establishes the temporary nature of new water rights;
allows for the constitution of water rights for environmental conservation purposes; and
extends participation in watershed management to neighbouring communities and local organisations.

Climate change is an urgent issue in Chile. In this regard, the recently approved Climate Change Framework Law establishes a mandatory deadline for the country to achieve carbon neutrality, and establishes climate change management instruments, such as the Long-Term Climate Strategy, Sectoral Climate Change Mitigation Plans, Greenhouse Gas ("GHG") Emission Standards, among others. In relation to the private sector, this new legislation establishes the inclusion of the climate change variable in the environmental evaluation of investment projects. It also establishes the obligation to report GHG emissions in the current Pollutant Release and Transfer Register ("PRTR"), it incorporates the climate change variable as part of the reporting obligations of companies before the CMF and creates GHG emission reduction or absorption certificates that may be used to demonstrate compliance with the emission limits of the GHG emission standard, thus creating a carbon market.

The participation of citizens and indigenous communities in projects that may have an environmental impact is another relevant issue. In this sense, the environmental authority has recently expanded the criteria for citizen participation in projects that require environmental assessment.

In relation to indigenous participation, Chilean courts and agencies have strengthened the application of International Labour Organization Convention 169 standards to domestic law; and new trends have gained relevance, such as communities' claims to participation in the profits made from projects on their ancestral lands.

3 Disclosure and transparency

3.1 What primary disclosure obligations relating to ESG apply in your jurisdiction?

The disclosure of ESG information is an emerging topic in the Chilean regulatory framework.

In the environmental sphere, disclosure obligations are closely related to the right to public access to information, including the assessment process of investment projects. Once a project has been authorised, periodical disclosure to the Superintendency of Environment is required. Likewise, the Ministry of the Environment maintains a Pollutant Emissions and Transference Registry in which all sources of emissions must be registered. In this sense, disclosure obligations are directly linked to the duty of administrative agencies to ensure transparency with respect to environmental administrative and judicial processes.

In labour matters, an obligation for employers to register employment contracts with the Labour Directorate recently entered into force. However, this information is not available to the general public.

The most significant progress regarding disclosure obligations concerns the CMF requirement for regulated entities to include ESG information in their annual reports. The CMF's General Standard 461 obliges regulated entities to address diverse ESG issues in their annual reports in view of an integrated reporting approach. The ESG issues to be reported include:

corporate governance;
risk management systems;
supplier management;
regulatory compliance indicators;
sustainability indicators;
strategic goals; and
business model.

All entities' annual reports are publicly available on the CMF's website. The application of this standard is progressive, as it remains voluntary for companies with small equity for the time being.

3.2 What voluntary ESG disclosures are also commonly made in your jurisdiction?

Given the international importance of a broader scope of risk management, the corporate implementation of human rights risk assessments has become increasingly common. For large companies with an international presence, this is increasingly demanded by consumers and suppliers; while at the domestic level, this recommendation is included in Chile's National Action Plan of Business and Human Rights.

Another practice that, while not mandatory, is becoming standard is annual sustainability reporting. These reports highlight the company's objectives, strategies and results in relation to issues such as:

labour matters;
product and service responsibility;
community relations;
environmental impacts; and
corporate governance practices.

As outlined in questions 1.5 and 2.2, international financial market pressures and growing demand for ESG traceability have driven companies to adopt voluntary reporting practices based on methodologies such as the Global Reporting Initiative Standards, the International Integrated Reporting Council Model and B Corporation or ISO 26000 certification.

3.3 What role is played in this regard by (a) the board and (b) other corporate bodies and/or officers?

The commitment of the board of directors to engage in ESG matters and to disclose relevant information is essential for ESG implementation. For an ESG culture to permeate the entire company and its operations, ESG commitments and policies must be upheld at the highest organisational level. A decade ago, ESG matters were the exclusive preserve of social responsibility departments and rarely received attention from the board of directors. However, growing awareness of the financial, reputational and legal relevance of ESG compliance has since changed this situation. Today, not only are ESG commitments endorsed by the highest management entities of a company, but in large companies, shareholders are also increasingly appointing at least one director to the board with a special interest in and knowledge of the ESG field.

Furthermore, in response to Law 20,393 on the criminal liability of legal entities, companies have started to incorporate the position of compliance officer into their corporate structures. This law states that this officer should have access to the board of directors in order to strengthen their awareness of the risks of non-compliance. Compliance officers are increasingly incorporating criteria relating to risk matrices, and therefore to crime and risk prevention models.

3.4 What best practices should be considered in relation to ESG reporting and disclosure?

Best practices should involve:

the development of clear and practical tools to measure ESG impacts;
a commitment to make public the results of such impact assessments; and
due diligence actions in order to address them.

Third-party certification and auditing are also very important, as they increase public confidence in the data that is being reported.

Companies' commitment to transparency and access to information is certainly good practice; but it sometimes happens that this information is only made available on company websites during agency certification processes, and not permanently.

Another practice relates to the decision on what information to report. Although companies tend to highlight indicators that are significant in their specific industry, it is also important to bear in mind ESG aspects that are relevant to other stakeholders, such as workers, suppliers and customers.

4 Strategy and governance

4.1 How is ESG strategy typically designed and implemented in companies in your jurisdiction?

In Chile, ESG strategies are generally driven by international requirements, either for financing purposes or in response to demand from stakeholders such as suppliers, customers and shareholders.

Companies are increasingly establishing specific departments focused on the management and assessment of ESG issues. In this sense, the positions of sustainability managers, compliance managers and diversity and inclusion officers have become increasingly common.

As ESG compliance is increasingly important to consumers, in response to customer demand, the top management bodies of companies are establishing ESG strategies and setting up integrated working groups comprised of personnel with a high level of knowledge and experience in related areas.

4.2 What role is played in this regard by (a) the board and (b) other corporate bodies and/or officers?

The board of directors is primarily responsible for defining the company's ESG strategy. Company policies in this regard require the approval of the highest management entity, so its support is essential. The authorisation of ESG policies at the highest corporate level is a principle enshrined both in international standards and in Chilean soft law regulations on the matter.

Other corporate bodies also have an essential role to play, since ESG matters are varied, involve different standards, and often require specialised teams in each area to identify gaps in a company's policies and practices, and to determine the appropriate steps to address them. In this sense, input from support teams – including legal, financial, compliance, human resources and other management areas – is essential to:

identify risks;
propose plans and programmes to the board of directors; and
execute those actions once approved.

4.3 What mechanisms are typically utilised to monitor the implementation of ESG strategy in your jurisdiction?

Companies usually have a compliance department which:

monitors legislative and regulatory compliance; and
identifies gaps in the company's structure that should be improved or modified in order to better comply with environmental, safety and labour regulations, among others.

In this sense, companies commonly develop risk matrices which are incorporated into internal compliance management and used for reporting purposes – sometimes to third parties and sometimes internally – in order to provide an account of their results in their sustainability reports.

Also, further to the implementation of Law 20,393 on the criminal liability of legal entities, companies are expected to appoint a compliance officer in order to:

design a risk matrix that identifies the company's legal risks;
establish appropriate risk management measures and corporate bodies in charge of monitoring; and
maintain a record of complaints filed and whether they have been correctly addressed by the corresponding person or body.

With regard to voluntary ESG standards, the monitoring of compliance depends mainly on the specific commitments made by each company's board. In this sense, the internal structure of the company will be fundamental, as it is crucial to have:

specific departments in charge of environmental, social and governance matters; and
the technical capabilities to assess risks and implement prevention and mitigation measures.

Third party certification of the companies reporting is still incipient in Chile.

4.4 What role is played in this regard by (a) the board and (b) other corporate bodies and/or officers?

According to international standards, the ESG commitments and policies of any company should be sanctioned at the highest corporate level. Additionally, in many boards of directors, one or more directors have a personal or professional commitment to ESG matters, with a view to ensuring the permanent inclusion of ESG considerations in company policies. Even so, in most cases, the board of directors or the most senior bodies in the company are informed by the compliance officer, who must have access to management and report on their activities and results.

The decision on whether to appoint a compliance officer will largely depend on whether the company has a crime prevention system in place within the framework of Law 20,393 on the criminal liability of legal entities.

4.5 How is executive compensation typically aligned with ESG strategy in your jurisdiction?

As a general norm, currently in Chile, there are no economic incentives to executives designed to encourage compliance with ESG strategy.

4.6 What best practices should be considered in relation to the design and implementation of ESG strategy?

It is very important that companies first seek advice from independent third-party experts, in order to:

identify their strengths and weaknesses in relation to ESG;
obtain an expert external assessment of the proper management of ESG practices; and
ensure transparency and reliability in the processes developed in this area.

Measurement of the company's ESG parameters is crucial. Companies can only manage those risks that have previously been measured, so it is very important to have in place processes to evaluate their progress and shortcomings in this regard – for example:

preventive audits;
crime prevention systems;
human rights evaluations; or
certification processes.

In this sense, it is essential that companies clearly identify the salient aspects they need to address in order to improve their ESG management.

On the other hand, it is also important that companies adequately disclose ESG information in order to enhance their corporate reputation – a key intangible asset in terms of marketing as well as international visibility.

5 Financing

5.1 What is the general approach of lenders towards ESG in your jurisdiction? What internal and external information regarding a prospective borrower will they typically consider in this regard?

The domestic financial market is only now beginning to incorporate ESG criteria into financial evaluation mechanisms and risk assessment processes. Nonetheless, as Chile's market is highly exposed and dependent on the flow of international capital, the growing trend towards the incorporation of social-environmental risk assessment in financing has encouraged local companies to expressly address these issues when seeking better financing opportunities, which in turn is having an impact on the local financing markets.

Chile's larger companies recognise that negative reputation and the lack of social licence hinder access to financing; and especially companies whose activities may impact on sensitive social issues are requested to provide evidence of their compliance with ESG standards by lenders. These include:

companies involved in renewable energy production;
companies involved in supply chains which are subject to further ESG requirements by international clients;
companies operating in indigenous territories; and
companies active in highly contaminating industries.

As there are no unique and standardised ESG reporting criteria required by lenders, when ESG standards are assessed, companies tend to rely on international reporting standards, such as the Global Reporting Initiative Standards or the International Integrated Reporting Council Model.

5.2 Are bonds/loans that are marketed as green bonds/loans, social bonds/loans, sustainability bonds/loans or similar a feature of the markets in your jurisdiction?

Since 2019, Chile has issued sovereign green bonds in order to promote projects relating to:

clean transportation;
energy efficiency;
renewable energy;
sustainable use of land, natural resources and protected marine areas;
water management; and
green buildings.

Additionally, the private sector has seen the rise of a new market for green and social bonds issued by companies and traded on the Santiago Stock Exchange, promoting the development of projects with positive social and environmental externalities.

In Chile, there is a green bond market, as green and social bonds can be traded on the Santiago Stock Exchange, encouraging companies to meet ecological and social objectives at a global level. This market works like any other stock market, with the difference that in this case, green and social bonds are issued instead of stocks. Financing through these bonds must relate to green or social projects, as defined according to the Green Bond Principles, the Social Bond Principles or the Climate Bond Standards.

The market has been slowly gaining traction and demand is expected to increase as social and environmental legal standards become stricter.

5.3 What key developments have taken place in the structuring of these instruments in your jurisdiction?

The Santiago Stock Exchange has played a vital role in the development of the bond market, which is in line with international trends based on the principles determined by the International Capital Markets Association, implementing the Sustainable Debt Instruments Market. The role of the Financial Market Commission as the supervisory agency has also been significant, as it is in charge of overseeing the registration of bonds.

A recently approved framework law on climate change introduces the new instrument of emission reduction certificates for projects that reduce or absorb greenhouse gas emissions (GHGs). In order to comply with emission standards, these certificates may be used to certify the reduction or absorption of GHGs and are obtained through the implementation of projects in Chile for this purpose. Certificates may also be transferred, creating a certificate market.

Additionally, several proposals are ongoing in order to further open up these financing markets to small and medium-sized companies, as they are not yet fully engaged in this trend.

5.4 What best practices should be considered in relation to ESG in the financing context?

In the context of financing, it is essential that companies can provide accurate, transparent and easily accessible ESG information to the market, so that investors and shareholders can make informed decisions on their investments and loans. It is very important for companies to understand that ESG compliance is not just a matter of polishing their public image, as strict international and – increasingly – local standards must be met to evidence such performance.

Some companies have adopted green or socially friendly language without effectively undertaking measurable commitments towards these goals. This has not only proved unsuccessful in terms of financing opportunities, but has also been detrimental due to the public backlash caused by discrepancies between their claims and the reality. It is crucial that Chilean companies understand the legal implications of ESG matters and systematise and standardise both structures and processes in order to incorporate these standards in a measurable way and promote due diligence. This is essential not only in relation to their social licence, but also in relation to financing opportunities, their standing before administrative authorities and the mitigation of risks relating to ESG litigation.

The early adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards being developed by the International Sustainability Standards Board (ISSB) will be crucial to standardize financial ESG reporting in Chile.

6 ESG activism

6.1 What role do institutional investors and other activist shareholders play in shaping ESG in your jurisdiction?

Investors and shareholders ultimately measure a company's performance not only in terms of its economic results, but also in terms of its long-term sustainability. In this way, their actions are focused on pressuring boards of directors so that ESG and supplier relations management is incorporated into the company's investment decisions.

The Chilean economy is highly dependent on international relations and is highly focused on the export of raw materials. In this regard, the world export market has been requiring compliance with standards that apply in the major jurisdictions that import the raw materials and services exported by Chile.

ESG strategies are crucial to access financing, particularly from foreign entities, and to maintain commercial relations with large suppliers and customers in markets where ESG criteria are currently applied throughout the production and supply chains.

Financial institutions such as the World Bank, investment funds and foreign stakeholder groups are increasingly demanding ESG compliance worldwide.

Along the same lines, the boards of directors of large Chilean companies generally have foreign representation due to the corporate ownership relationships of their shareholders. This means that the applicable standards of other countries are now also being applied in Chilean subsidiaries.

These trends are increasingly reflected by the importance that both the market and shareholders perspectives on companies' sustainability reports.

6.2 How do activist shareholders typically seek to exert influence on corporations in your jurisdiction in relation to ESG?

Shareholders are increasingly demanding information on companies' compliance with ESG standards – partly because they see non-compliance as a potential risk, in terms of access to financing, social licence, corporate reputation and litigation.

Shareholders are progressively appointing at least one director to the board with special interest or credentials in relation to ESG matters and are becoming aware of third-party reporting or denouncements in relation to company practices. Shareholders have started to request specific information or explanations from the company and are sometimes even engaging in litigation against the administration or the board if gross breaches of legal obligations relating to ESG matters have caused severe damage to the company's interests or market value.

6.3 Which areas of ESG are shareholders currently focused on?

With regard to environmental issues, a key concern is sustainable water management – in particular, in the case of extractive and energy generation industries. This has been further emphasised by recent legal reforms in relation to water rights, including express recognition of the human right to drinkable water and water sanitation.

Another key focus is climate change, as Chile has made several international commitments in this regard. Additionally, commitments on this issue present financial opportunities relating to emissions bond markets. Finally, the Chilean environmental regulations have become more stringent in relation to the effects of business on climate change, as evidenced by the recently enacted Law 21,455 on Climate Change.

In terms of social issues, community relations and social licence are key stakeholder concerns. Especially important is compliance with indigenous rights, as a lack of proper indigenous consultation could lead to litigation over an environmental authorisation. In the country's southern regions, outbreaks of violence have highlighted the opposition of some indigenous communities to specific industries, such as the timber industry.

6.4 Have there been any high-profile instances of ESG activism in recent years?

Recent high-profile cases relating to corporate governance and the environment have heightened public demand for companies to improve their performance in these areas.

With regard to the environment, some shortcomings in legislation have become evident, especially with regard to land use planning. These have led to the creation of so-called ‘sacrifice zones', where the extent of industrial growth is such that the living conditions of the surrounding population have severely deteriorated. In these areas, companies are normally compliant with current legislation, but their activities are nonetheless having cumulative environmental and social impacts. Public pressure has led the authorities to implement stricter controls and sanctions.

With regard to corporate governance, some cases of corruption – including the co-opting of legislators and other politicians – have resulted in the imposition of sanctions at the national and international (for violation of the Foreign Corrupt Practices Act) level, and even in imprisonment for some of those involved, in addition to severe reputational damage. These cases raised the alarm for all major companies to put in place effective and operational crime prevention systems in order to mitigate risks associated with bribery, corruption and related crimes.

Likewise, these cases heightened public awareness of the probity of companies and their corporate image. In this regard, an ESG strategy that promotes transparency, corporate governance and the adoption of good practices and codes of ethics has become increasingly relevant.

ESG activism has also seen an increase in the participation of indigenous communities, which have even sued the State of Chile before the Inter-American Human Rights System for its authorization of projects in their territories.

6.5 Is ESG activism increasing or decreasing in your jurisdiction? How and why?

Awareness of ESG issues is clearly advancing in Chile, as reflected in the exponential media coverage of sustainability and other ESG matters. As a result, the public, other relevant stakeholders and the government are demanding that companies be held accountable for their actions in this regard.

The importance of ESG issues was highlighted during the recent constitutional process, in which key concerns that emerged included:

climate change;
a sustainable approach to development and natural resources;
the protection of indigenous communities;
the sustainable management of water resources; and
citizens' participation in environmental assessment processes.

7 Other stakeholders and rights holders

7.1 What role do stakeholders or rights holders (eg, employees, pensioners, creditors, customers, suppliers, and Indigenous communities) play in shaping ESG in your jurisdiction? What influence can they exert on a company?

Clients play a very important role in enforcing international reporting standards in different ESG areas and implementing mitigation measures for identified risks and impacts. The Chilean market is very much part of the globalised economy and exports large volumes of raw materials, so the influence of international clients in the automotive and technology sectors, among others, can be very strong.

Indigenous communities have also increasingly gained relevance in recent years – mainly in the mining industry in the north of the country and the energy generation industry in the south. The influence of these stakeholders has made it an increasingly common practice for companies to develop community relations plans or policies, and to seek cooperation agreements with local communities. In this sense, there is greater awareness of the relevance of social licence as a necessary factor for corporate sustainability.

8 Trends and predictions

8.1 How would you describe the current ESG landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The ESG landscape in Chile continues to evolve. Although the country's public and private sector are increasingly engaging in ESG commitments, a more advanced and standardised legal framework in relation to reporting due diligence is required. It is clear that there is both political consensus and public pressure to enhance standards of corporate transparency, environmental awareness and social accountability. Although binding legislation on these topics could take a few more years to develop, the private sector will pioneer the incorporation of these practices, as the international markets are a key driving force in relation to ESG goals.

The presentation of the new long-term climate strategy of the Ministry of the Environment and sectoral plans for mitigation and adaptation to climate change are examples of proposals to be followed in this area.

9 Tips and traps

9.1 What are your top tips for effective ESG implementation in your jurisdiction and what potential sticking points would you highlight?

One of the major challenges for companies operating in Chile in relation to ESG implementation is the lack of unified guidance or criteria on matters which are not yet subject to mandatory law, but on which the market is nonetheless demanding action. As such, it is key for companies to properly assess the ESG risks specific both to their industries and to their specific circumstances. While international guidelines and general risk assessments can be useful, it is crucial for a company to undertake its own ESG risk assessment with effective participation of all stakeholders, both internal and external, so that it can focus its efforts on the due diligence, reporting and management of issues which are especially relevant to its business.

No ESG implementation will be effective if the internal personnel to whom such duties are assigned are not fully supported by, and have frequent communication with, the managers and the board of directors.

It is also crucial to measure corporate ESG impacts – in terms of not only the final results, but also ongoing steps and progress in the implementation of different measures. Otherwise, the company's efforts will not be properly reflected – especially given that the full implementation of some ESG goals may take several years.

Finally, and of fundamental importance, Chilean companies should fully engage in ESG language and terminology, as many of their efforts are sometimes ignored when they are presented in purely economic or domestic legal terms that do not reflect their relevance to ESG standards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chile: ESG Comparative Guide