CHILE: An Introduction to Environment
Corporate Sustainability Due Diligence in Chile
The commitment to sustainable development as a business model has been voluntarily implemented by various Chilean companies. In this sense, the development of an industry that is aware of its impact on the environment and human rights is the model proposed by corporate sustainability due diligence (CSDD).
In an export-oriented economy such as Chile’s, it is important to keep an eye on regulatory changes in key trading partners. In this regard, 2024 has been a significant year for sustainable development. The European Union reached a broad consensus and enacted the Directive (EU) 2024/1760 on Corporate Sustainability Due Diligence. This Directive requires European companies and their partners throughout the supply chain to prevent, end or minimise their negative impact on human rights and the environment.
In consideration of the above, the objective is to identify the risks that Chilean companies may face regarding these regulatory changes and to propose a possible solution to the issue.
The regulatory shift from Europe: CSDD
The concept of human rights due diligence in business was introduced by the United Nations Guiding Principles on Business and Human Rights, which were issued in 2011. Subsequently, the OECD embraced these principles and incorporated them into its Guidelines for Multinational Enterprises on Responsible Business Conduct, last updated in 2024.
These efforts prompted some countries to enact legislation to require companies and their subsidiaries to implement human rights and environmental due diligence processes in their operations. This is the case in, among others, France, Germany and Norway.
Although principles and laws had already encouraged certain industries to move in the direction of CSDD, the biggest step in this direction yet was taken by the European Union with the enactment of Directive (EU) 2024/1760 in June 2024. Within two years of its enactment, EU member states must transpose this Directive into their legal systems.
Among the obligations set out in the Directive is the integration of due diligence into the company’s risk management policies and systems. This due diligence process must include the necessary measures for companies to identify and address adverse human rights and environmental impacts.
Finally, considering the EU’s economic power as a political bloc and because of its single market, this regulation is expected to affect industries and companies around the world.
The danger: Chilean industry in the face of regulatory change
The issue of CSDD has been addressed in only a limited manner in Chilean law. Although the country has various regulations that establish requirements for the different productive sectors, there is no general law that establishes the obligation for companies to implement a due diligence process with a focus on human rights and the environment. The major exception is General Rule No 461, issued in 2021 by the Financial Market Commission. Although this Rule obliges companies to evaluate their activities in the light of their human rights obligations, adherence to it is voluntary and only applies to certain listed companies.
In any case, although Chile has not undertaken the same reforms as its European trading partners, Chilean companies face the risk of being marginalised in the European single market. An industry focused on the export of different types of goods, such as Chile’s, is aware of the risks it faces if it does not comply with the legal requirements set by the destination country. If it does not meet the entry requirements, it is excluded from the market. This is especially risky in economic terms considering the size of the single European market.
The risk of being excluded from certain markets is increased if one considers that there are competitor states that have enacted such laws. As an example, Australia enacted its Modern Slavery Act in 2018 and has an export-oriented economy. Its main exports share characteristics with Chile, in both cases these consist mostly of products from the mining and agricultural industries. In this sense, it is not surprising that Australian companies are already familiar with these types of regulations.
The answer: a preventive approach and its integration into legal risk-management
The reforms being pushed from Europe are ambitious, as they aim to make the requirements apply indirectly to their trading partners and to the entire supply chain associated with the production of a good or service. The challenge that these regulatory changes create should not be underestimated. European companies subject to these due diligence and reporting duties will extend these obligations to their partners and suppliers throughout their supply chain. Of course, this includes Chilean companies.
The response to this risk is to adopt a preventive approach to legal risk management and to identify the potential negative human rights and environmental impacts of its operations.
Although these regulatory changes seem substantial, they are a useful tool for the management of legal risks in a company. In this regard, it is important to remember that in 2024, Law No 21.595 on Economic Crimes (the “Economic Crimes Law”), enacted in 2023, came into full force in Chile. This law creates a system of economic and environmental crimes and modifies the statute of criminal liability of legal persons. In this sense, the CSDD can be incorporated and considered in crime prevention models implemented considering the Economic Crimes Law.
Finally, the preventive approach and the incorporation of European requirements in industry is an opportunity for Chilean companies to strengthen their commitment to human rights and reinforce their global competitiveness. It is an invitation to be part of a sustainable development model, in which businesses are increasingly aware of their impact on society and the environment.