ESG 2023 Comparisons

Progress in Ecuador to Protect People and the Environment

While it is true that there is not yet much progress in ESG practices having local standards and becoming part of the business culture, in the past year there have been some developments that have started to have a material impact in Ecuador, as detailed in this article.

Environmental

With respect to Ecuador’s private sector thematic bonds, at least seven have been issued in different areas. This makes the country a pioneer in the region in the issuance of these sustainable financing instruments.

Until August 2023, several private financial institutions issued thematic bonds for more than USD1 billion to provide green and social financing.

• 2019 – first green bond issue for USD150 million.
• 2020 – first social bond issue for USD20 million.
• 2022 – issuance of four new bonds:
1. a sustainable bond for USD50 million;
2. a gender bond for USD100 million;
3. the first private issue in the region of a blue bond for USD79 million;
4. a gender and inclusion social bond for USD30 million; and
5. a diversity and inclusion social bond for USD20 million.

The challenge now is to create the conditions for private companies to also issue thematic bonds to finance sustainable projects.

In the same sense, in July 2023, regulations were issued for the issuance of sovereign green bonds, which would allow public institutions to act as issuers of sustainable financing.

It is a mechanism to finance public investment projects with a positive environmental and climate impact. The framework contains a number of technical criteria and conditions for projects seeking green bond financing. Projects must address:

• biodiversity conservation;
• sustainable transport;
• appropriate waste management;
• renewable energy;
• energy efficiency;
• reasonable agriculture;
• responsible water management;
• efficient waste-water management; and
• combating climate change.

Currently under discussion is the creation of legal regulations to make the issuance, marketing, and use of carbon credits viable, both for local and international issuers. This will allow different actors to benefit from a favourable regulatory framework for this type of instrument, with Ecuador as an important actor due to its geographical and economic conditions and the dollar as its legal tender.

In May 2023, the first foreign debt-for-nature swap for the conservation of the Galapagos Islands took place, the largest operation to date. With the debt swap, the Ecuadorian state will stop paying USD1.63 billion in foreign debt bonds. Instead, the Ecuadorian government will pay USD656 million in foreign debt bonds.

The resources that Ecuador saved by exchanging the sovereign bonds will be used for the protection of the marine reserve in the Galapagos and for conservation research, which will be administered through the Galapagos Life Fund consortium, a non-profit organisation created for this project. The NGO is made up of public and private entities, and also has a flow management trust.

Ecuador signed the High Seas Treaty at the 78th UN Assembly. The international treaty converts 30% of the oceans into protected areas by 2030, with the aim of safeguarding and recovering marine nature. The next step will be ratification by the Constitutional Court and the National Assembly of Ecuador.

The President of the Republic issued the decree-law on plastic bottle tax, which was ratified by the Constitutional Court on 19 September 2023. This decree-law establishes the Redeemable Tax on Non-Returnable Plastic Bottles. It also establishes a fee of USD0.02 for each non-returnable PET plastic bottle, which will be paid by the state only to those who are considered recyclers and who deliver these bottles to the corresponding collection centres.

In turn, all companies and individuals importing, producing, or marketing non-returnable PET plastic bottles for beverage packaging in the national territory must pay this tax.

By means of Executive Decree 844, the President of the Republic promulgated the Regulations to the Circular Economy Law. Among the most relevant aspects are the following.

• The creation of the National Integrated Registry of Emissions and Waste Transfer (RNETR), which will contain information related to producers, importers, imports of priority products (whose registration will be mandatory), as well as non-priority products (whose registration will be voluntary), as long as their waste is subject to recovery and valorisation. It is also stipulated that their collection and recovery targets must be reported on an individual basis.
• The waste generation threshold will be calculated in a technical way, with the support of the productive sector and academia.
• The Voluntary System of Circular Economy is constituted so that natural and legal persons who register and comply with the obligations can access the benefits of the Law.
• Manufacturers of priority products may set up individual or collective management systems to comply with the Integrated Waste Management Programme.
• Collection and recovery targets for waste from priority products will be established in the secondary technical standard according to the type of waste. These targets will be set by the National System of Inclusive Circular Economy (SNECI).

On 19 July 2023, the Ministry of Energy presented the roadmap and strategy for green hydrogen production. The objective of Ecuador’s green hydrogen roadmap is framed in a just energy transition that contributes to reducing greenhouse gas emissions by 20–25% by 2025, thus contributing to limiting global warming to less than 1.5°C, and making H2V a competitive energy source.

To achieve the hydrogen and hydrogen derivatives production targets set out in the roadmap, three phases have been mapped out:

• initial phase – up to 2025;
• medium-term deployment phase – until 2030; and
• long-term roll-out phase – beyond 2030.

Social

In January 2023, the Organic Law to Promote the Violet Economy was published, whose main objective is to include a gender perspective in different areas and aspects of everyday life. In addition, incentives for women’s participation in the labour, professional, business, managerial, and political spheres are determined.

In labour matters, it promotes gender equality in order to close the wage gap in both the public and private sectors. It seeks the elimination of the gender roles that women have traditionally held.

Regarding the prevention and eradication of sexual and gender-based harassment at work, employers with more than 25 workers on the payroll must create, disseminate, and implement codes, protocols, policies and procedures for the prevention and handling of complaints or claims. In case of non-compliance, the employer may be sanctioned by the Ministry of Labour.

With regard to leave, the possibility was introduced for the mother to share her paid maternity leave (12 weeks) with the father, up to 75%. This decision must be notified to the employer prior to the start of the maternity period. In addition, employers with more than 50 employees must provide childcare for their employees. Finally, breastfeeding leave was increased for mothers, who will have a working time of 6 hours per day during the 12 months following the birth.

Employers with more than 100 workers and who hire female interns will have an additional 0.5% of the minimum staffing requirement which must be equal to 4% of the total number of their workers who have a professional degree awarded by a higher education institution.

The current government has initiated a discussion on reforms to the social security regulatory framework. A commission was set up to evaluate different scenarios and alternatives. A report was produced which formulated proposals that were presented to society at large. This report is being used by the government to present a legislative proposal to be debated by the next assembly.

On 20 August 2023, a national referendum was held in which the population was asked whether they agreed or disagreed with keeping the ITT (Isphingo-Tiputini-Tambococha) oilfield located in the Yasuní National Park underground indefinitely. The “yes” vote won with 58.95%, while the “no” vote obtained 41.05%. A deadline of up to one year was set for the government to dismantle all infrastructure and start environmental remediation activities.

On the same day, 20 August 2023, a local referendum was held, in which the population was asked whether they agreed to ban all mining activity (small-, medium-, and large-scale) in the Chocó Andino region. The restriction on mining activity won, meaning that no new concessions can be granted in the northwest of Quito.

Governance

The Organic Law to Promote the Violet Economy also introduced new rules for the formation of boards of directors, establishing that for every three members, one must be a woman.

With the enactment of the latest reform of the Companies Act, a number of changes related to aspects of good corporate governance were introduced.

• Composition of boards of directors with independent directors for publicly listed companies.
• In the case of limited companies, the shares issued are freely transferable by inter vivos act for the benefit of one or more other shareholders of the company and may be transferred by private document. They may also be pledged in favour of a third party with the unanimous consent of the share capital.
• The rights of minority shareholders are recognised and strengthened with regard to the possibility of requesting information, as well as the inclusion of items on the agenda or suspending the effects of decisions taken by the governing bodies in the event that voting rights are abused.
• It also creates a duty of non-competition for shareholders with respect to the prohibition to participate in acts or operations that imply competition with the company, or to take for themselves business opportunities that correspond to the company, except with the express authorisation of the general meeting.
• It was established as a general rule that shareholders’ agreements concerning any lawful matter shall be valid among themselves, but unenforceable against third parties. However, the agreement shall be enforceable against a third party where it is shown that the third party knew of its existence and stipulations.

Regarding environmental consultation regulations, the President of the Republic issued Executive Decree 754 in May 2023. This instrument was intended to implement the consultation process in relation to the environmental impact that could affect people who live or have interests in the areas of influence of the different projects catalogued as medium and high environmental impact of any nature, as well as any project belonging to the oil or mining industry in Ecuador.

The consultation has three main moments:

• an informative one in which the content of the Environmental Management Plan is communicated;
• one for the collection of observations; and
• a consultative one in which people give their opinions on the aforementioned Environmental Management Plan.

However, in July 2023, the Confederation of Indigenous Nationalities of Ecuador filed a claim of unconstitutionality of Decree 754, arguing that it should be a law. As part of the processing of this case, the Constitutional Court granted a request for precautionary measures suspending the effects of the Decree, in order to analyse whether the Decree can be declared unconstitutional. The final decision of the Constitutional Court is pending.

No content has been provided

No content has been provided