What are the top three developments in Chile concerning green claims and the associated risk of greenwashing?
Chile is slowly making progress in preventing and sanctioning greenwashing, a practice that is misleading not only for consumers, but also for investors and the market in general. The focus in Chile, from various initiatives and sectors, has been to promote transparent markets, with useful and relevant information for consumer and financial decisions, which ultimately reduce asymmetries between market participants.
1. Bill to prevent and punish greenwashing
A bill to prevent and punish greenwashing, is being discussed in the House of Representatives (“Cámara de Diputados”) which main purpose is that companies that advertise their products or services with a focus on sustainability must provide complete, truthful, verifiable, and accurate information, otherwise they will be subject to penalties.
In addition, practices that are carried out in mere compliance with legal and regulatory provisions or mitigation, repair, compensation, or voluntary commitments to which the company is compelled to in accordance with Law 19,300 (General Bases of the Environment), may not be advertised as sustainable.
Finally, companies that advertise sustainability-related information must keep available, accessible, and permanently updated information on their websites regarding their environmental practices carried out in the national territory and in the countries in which they have investments, activities, branches, and facilities.
2. Implementation of General Rule No. 461, which incorporates information requirements on sustainability and corporate governance in the Annual Reports of the entities supervised by the Financial Market Commission (CMF)
Along with the development in consumer protection, and following a comprehensive approach to the subject, companies must also address the growing interest of investors in non-financial information, especially with respect to the management and impact of governance, social and environmental factors (ESG).
In this regard, the CMF published General Rule No. 461, which incorporates information requirements on sustainability and corporate governance in the Annual Reports, applicable to entities supervised by the Commission, such as banks, insurance companies, issuers of publicly offered securities, general fund managers and stock exchanges. Among several innovations, the Rule made the disclosure standards of the Sustainability Accounting Standards Board (SASB Standards) enforceable for securities issuers.
To fulfill its purpose, the CMF published an “Implementation Guide”, which provides elements to improve the standard of information that securities’ issuers must disclose to the market, aligning it with the current demands of investors and with the standards that have been adopted internationally. In particular, the Guide provides orientations for the supervision of SASB Standards by Industrial Sector, including 26 industrial sectors that seem to be the most representative.
3. Main ESG regulation in Chile: Climate Change Framework Law
In 2022, Law No. 21,455 "Climate Change Framework Law" was enacted. The purpose of this law is to address the challenges brought by climate change, in line with the commitments of neutrality of greenhouse gas emissions by the year 2050 and others assumed by Chile in international forums.
From its review, it can be noticed that it refers to several ESG issues that, since they are included in a Framework Law, give greater scope and breadth to this area, allowing us to state that we could be in front of one of the main -if not the main- ESG regulation in Chile. Even, it could be said, more so than General Rule No. 461 of the Financial Market Commission
This law introduces amendments to several laws: the incorporation of a new first paragraph into article 10 of Law 18. 045 "Securities Market", according to which the entities registered in the Securities Registry must provide, among other things (and without prejudice to NCG No. 461) "information referred to environmental and climate change impacts...including the identification, evaluation and management of risks related to those factors..."; or, the incorporation of a new final subsection of article 48 of the first article of Law 20.712 on "Administration of Third Party Funds and Individual Portfolios", in a similar sense.
Although the law does not expressly refer to the term ESG, it refers to matters of its interest and study, so we encourage Directories, Compliance Officers, among other stakeholders, to read this Framework Law, through an ESG approach.
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