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ESG Latin America & the Caribbean Guide 2024 | Charting Sustainable Futures

Ecuador

(Latin America/Caribbean) Firm Pérez Bustamante & Ponce

Contributors Carla Lozano Morales
Javier Salvador-Soto
Gabriela Díaz
Jaime Zaldumbide
Juan Carrasco
Carlos Izquierdo-Apolo
Paula Jácome
Jeannette Jarrín
Esteban Ortiz-Mena
David Noel-Romo

Updated 22 May 2024
ESG Regulation related to climate change prevention or mitigation, specifically concerning carbon footprint or pollution measurement, decarbonization strategies, and/or mandates and strategies to achieve local carbon neutrality commitments

Laws/regulations concerning climate change prevention or mitigation include: 

  • Organic Environmental Code Arts. 85, 86 and 260
    Article 85 of the Organic Environmental Code establishes mechanisms for compensation for actions or omissions that involve the conservation, sustainable management, and restoration of ecosystems, allowing for the generation and maintenance of environmental services. Meanwhile, Article 86 mentions that various sources of financing for such compensation are provided for, including public and private contributions, loans, and fees.

    Article 260 of the Organic Environmental Code states that the National Environmental Authority may determine and establish schemes for offsetting greenhouse gas emissions at the national level. These offset schemes shall be recognized by the National Environmental Authority or be compatible with instruments ratified by the state and the national climate change policy. Greenhouse gas inventories, emission reduction accounting, and offset schemes shall be regulated by the National Environmental Authority.

    The scope of the application of this law is Federal.
  • Ministerial Agreement No. MAATE-2021-047
    This Ministerial Agreement aims to issue guidelines and technical criteria for the implementation of the Ecuador Carbon Zero Program with organizational scope. It is of a voluntary nature and applies at the organizational level.

    Applicants will be natural or legal persons, whether public, private or a joint venture, national or foreign, for-profit or non-profit, conducting their activities within or outside the national territory, who voluntarily wish to quantify, reduce, and neutralize their greenhouse gas emissions ("GHG") generated in their various processes and activities through initiatives implemented within Ecuador.

    Applicants will choose the level of application and access to the corresponding "Carbon Zero" incentive granted by the National Environmental Authority, meaning they must first quantify the carbon footprint, then implement actions to reduce GHG emissions, and finally compensate for emissions that could not be reduced, in order to achieve carbon neutrality.

    The scope of the application of this law is Federal.

  • Ministerial Agreement No. MAATE-2021-046 Internal Tax Regime Law. Art. 10.
    This Ministerial Agreement aims to issue guidelines and technical criteria for the implementation of the Ecuador Carbon Zero Program with a product scope.

    This agreement is of a voluntary nature and applies at the product level based on the limits defined by the proponents.

    A product is understood as any good or service that is manufactured, assembled, marketed, distributed, exported, imported, or used within or outside the Ecuadorian territory. Applicants will be natural or legal persons, whether public, private or a joint venture, national or foreign, for-profit or non-profit, conducting their activities within or outside the national territory, who voluntarily wish to quantify, reduce, and neutralize greenhouse gas emissions ("GHG") generated during the product's lifecycle through compensation initiatives implemented within Ecuador.

    Applicants must first quantify the carbon footprint, then implement actions to reduce GHG emissions, and finally compensate for emissions that could not be reduced, in order to achieve carbon neutrality.

    The scope of the application of this law is Federal.
  • Internal Tax Regime Law. Art. 10.
    Additional 100% deduction of depreciation and amortization of machinery, equipment and sustainable construction technologies.

    The scope of the application of this law is State.
ESG Regulation regarding energy transition (requirements or promotion and use of new second-generation renewable energy sources such as solar, wind, tidal, H2, geothermal, among others).

Laws/regulations concerning energy transition include: 

  • Internal Tax Regime Law. Art. 10.
    Additional 100% deduction in depreciation and amortization expenses for the acquisition of machinery, equipment and technologies for the implementation of cleaner production mechanisms, renewable energy generation mechanisms (solar, wind or similar) or for the reduction of the environmental impact of the productive activity, and the reduction of greenhouse gas emissions.

The scope of the application is State.

ESG Regulation concerning electricity markets, carbon markets, or similar.

Laws/regulations concerning electricity, carbon, or other similar markets include: 

  • Ministerial Agreement No. MAATE-2023-053
    The technical standard establishes:
    1. The applicable guidelines for the implementation of new initiatives for the reduction and/or removal of  Greenhouse Gas emissions so that they can be used as emission offsets, and
    2. The compensation scheme for the initiatives described above.

The scope of the application is Federal.

ESG Regulation in the realm of green or sustainable financing, including taxonomies, provisions for mandatory reporting of material financial information on environmental or social matters, as prerequisites for issuing thematic bonds (green, sustainable,

Laws/regulations concerning the realm of green or sustainable financing include: 

  • Ministerial Agreement No. MAATE-2023-053
    The agreement determines that it is the responsibility of the implementers of mitigation initiatives (those who will receive compensation from proponents) to:
    • Transparently disclose at least the information related to the mitigation initiative, as well as the generated and retired Carbon Units ("UCE"), and the price paid for the UCE.
    • Register the mitigation initiative in the Compensation Portfolio of the National Compensation Registry and also in the greenhouse gas certification program registry approved by the National Environmental Authority ("AAN"), when applicable.

        The scope of the application of this law is Federal.

  • Organic Code of Production, Commerce and Investment
    The possibility of signing investment contracts that allow access to benefits such as tax stability and income tax rate reductions, is due to the efforts made by companies to invest in new fixed assets that are more environmentally friendly.

    The scope of the application of this law is State.
ESG Regulation for preventing greenwashing.

No environmental legislation has been issued regarding this matter.

Regulation on ESG Due Diligence applicable to value chains (MRV protocols to ensure the environmental integrity of products and services, etc.).

No environmental legislation has been issued regarding this matter.

Regulation in the field of circular economy.

Laws/regulations concerning the field of circular economy include: 

  • The Organic Law for the Inclusive Circular Economy and its Regulations
    The purpose of this law and its regulations is to define the powers and responsibilities of the entities and agencies that comprise the public sector; establish specific criteria and mechanisms aimed at implementing the principles of eco-design, sustainable production and consumption, reducing waste generation, promoting integrated and inclusive waste management and public policy and financing of the inclusive circular economy as a mechanism for economic well-being, job creation, sustainable development and reduced consumption of non-renewable resources. This law also establishes the incentives and possibility of financing for Circular Economy projects.
  • The Law for the Rationalization, Re-use and Reduction of Single-use Plastic
    This law seeks to regulate the generation of plastic waste, the progressive reduction of single-use plastics through responsible use and consumption, the re-use and recycling of waste and, when possible, its replacement by packaging and products made from recycled or biodegradable material with a lower carbon footprint than the product being replaced, in order to contribute to the care of health and the environment.

The scope of the application is State.

ESG Regulation related to stakeholder well-being and social impact.

Laws/regulations concerning stakeholder well-being and social impact include: 

  • The Organic Law on the Right to Human Care,  Law for the Prevention and Eradication of Violence Against Women
    Establish the necessary conditions for exercising the right to care, and grant paid and unpaid leave related to maternity and paternity. Guarantee the protection of the child during pregnancy, giving birth, postpartum, and breastfeeding. To prevent violence against women in all areas, including the workplace. The Ministry of Labor is encouraged to sanction any violence against women in the workplace.
  • Internal Tax Regime Law. Art. 10
    Additional deduction of 100% for private medical insurance and/or prepaid medical plan expenses.
  • Internal Tax Regime Law. Art. 10
    Deduction of up to an additional 150% of expenses for the organization and sponsorship of artistic and cultural events and the production and sponsorship of cinematographic productions.
  • Internal Tax Regime Law. Art. 10
    Additional deduction of 150% for the calculation of the taxable income tax base, for patronage or sponsorships provided to education entities at the elementary and high school level for scholarships, food or infrastructure, in public and public-commissioned schools and colleges.
  • Internal Tax Regime Law. Art. 10
    Deduction of an additional 150% of advertising and sponsorship expenses for athletes and sports programs, projects or events.

The scope of the application is State.

ESG Regulation concerning non-discrimination.

Laws/regulations concerning non-discrimination include: 

No one may be discriminated against for reasons of ethnicity, place of birth, age, sex, gender identity, cultural identity, marital status, language, religion, ideology, political affiliation, judicial background, socio-economic status, migratory status, sexual orientation, health status, HIV status, disability, physical difference; nor for any other distinction, whether personal or collective, temporary or permanent, which has the purpose or result of impairing or nullifying the recognition, enjoyment or exercise of rights.

Employers must have internal policies that prevent discrimination and create equality plans to ensure equality among all employees.

Employees may request the termination of the employment relationship with the right to compensation for unjustified dismissal in the event of discrimination in the workplace.

The scope of the application is State.

ESG Regulation pertaining to the prevention of modern slavery.

Laws/regulations concerning the prevention of modern slavery include: 

  • The Labor Code
    Any child labor is prohibited and all work must be remunerated.

    There are maximum daily working hours that cannot be exceeded. There are surcharges of 100% for work on mandatory rest days and the obligation to ensure a work disconnection time in the event of teleworking.

    The scope of the application is State.
ESG Regulation regarding Diversity, Equity, and Inclusion - DEI.

Laws/regulations concerning DE&I include: 

  • The Organic Law to Promote the Violet Economy
    The objective is for employers to conduct a diagnosis of their company to learn about the work environment and their employees' perspective on DE&I in the workplace.
  • The Internal Tax Regime Law. Art. 10
    Deduction of an additional 140% corresponding to remuneration and social benefits on which contributions are paid to the Ecuadorian Social Security Institute ("IESS") for the creation of a new job position targeted at hiring women.

The scope of the application is State.

Regulation on ESG-linked compensation.

Laws/regulations concerning ESG-linked compensation include:

It is the obligation of employers to guarantee equal salaries for similar jobs for women and men.

The scope of the application is State.

ESG Regulation for the protection of vulnerable or minority communities.

Laws/regulations concerning the protection of vulnerable or minority communities include: 

Inclusion of vulnerable groups in the workforce through mandatory hiring quotas:

  1. A person with a disability or who is responsible for the care and maintenance of a disabled person.
  2. Young people between 18 and 29 years old
  3. Amazon residents
  4. Galapagos Islands residents

Tax incentives for hiring women:

  • Internal Tax Regime Law. Art. 10.
    Deduction of an additional 150% that corresponds to remuneration and social benefits on which contributions are made to the Ecuadorian Social Security Institute for payments to disabled people or to workers who have a dependent spouse or child who is disabled.

  • Internal Tax Regime Law. Art. 10.
    Deduction of an additional 150% on expenses for patronage and sponsorships provided to non-profit entities whose activity is focused on care for pregnant mothers and the eradication of child malnutrition.

The scope of the application is State.

ESG Regulation for economic development of vulnerable or minority communities or groups.

Laws/regulations concerning the economic development of vulnerable or minority communities or groups include: 

Special indemnities in case of untimely dismissal and reinforced stability for female workers during maternity and breastfeeding periods. Therefore, the untimely dismissal of pregnant or breastfeeding women is prohibited.

The scope of the application is State.

Regulation on Personal Data Protection, concerning data usage transparency, limits on data usage to prevent discrimination issues, and corporate digital responsibility.

Laws/regulations concerning Personal Data Protection include:

  • The Organic Law for the Protection of Personal Data
    The processing of personal data contained in any type of automated or non-automated support is protected. It limits the use and establishes the obligation to have authorization to use data of third parties, and any violation of the rule may have pecuniary consequences.

The scope of the application is State.

ESG Regulation regarding the integration of the board of directors, board of trustees, or management body of the company (minimum participation/representation of women or minority groups, guidelines on the composition of board members with expertise in ES

Laws/regulations concerning the integration of the board of directors, trustees, or management body of the company include: 

The scope of the application is State.

Regulation on fiduciary responsibility and administrators' roles in environmental and social risk management (standards or interpretations regarding the scope of fiduciary responsibility or administrator's duty concerning the company's social purpose, bas

Laws/regulations concerning fiduciary responsibility and administrators' roles in environmental and social risk management include: 

  • Companies Law, art. (....) after art. 329. Article added by the ninth reforming provision of Law No. 0, published in Official Gazette Supplement 151 of February 28, 2020
    Extension of the fiduciary responsibility of the administrators, managers and directors, in the performance of their powers, of a benefit and collective interest company in which they must consider the effects or omissions with respect to: the partners/shareholders; workers and the company's workforce; clients and their consumers; the community; the environment; the company's performance in the short and long term; and the company's capacity to comply with its corporate purpose. The liability action against the administrators for non-compliance with the obligation to create a positive material impact in society and the environment shall be brought by the company with the prior agreement of the general meeting of shareholders/partners.

The scope of the application is State.

ESG Regulation concerning corporate purpose.

Laws/regulations concerning corporate purpose include: 

The scope of the application is State.

Regulation on types of Benefit and Collective Interest Companies (certifications like B Corps, specific regulations for BIC companies).

Laws/regulations concerning types of Benefit and Collective Interest Companies include: 

The scope of the application is State. 

ESG Regulation regarding supply chains from the perspective of ESG risk governance.

Laws/regulations concerning supply chains from the perspective of ESG risk governance include: 

The scope of the application is State.

ESG Regulation in the context of M&A (ESG due diligence).

Laws/regulations concerning M&A (ESG due diligence) include: 

  • ECUADORIAN STANDARDS FOR GOOD CORPORATE GOVERNANCE. PRINCIPLES. Official Gazette Special Edition 1076 of 25 September 2020

    Measures to Mitigate Corporate Corruption - Due diligence during the granting of corporate acts, acquisitions and other contracting, in order to verify irregularities, illicit acts or the existence of vulnerabilities in the companies involved.

    Periodic verification of the model and its eventual modification when relevant violations of its provisions become evident, or when there are changes in the organization, in the control structure or the activity carried out that make them necessary.

The scope of the application is State. 

ESG Regulation related to Corporate Digital Responsibility.

Laws/regulations concerning Corporate Digital Responsibility include: 

  • The Companies Law, Fourth General Provision
    The shares of a corporation or a simplified stock company may be represented by tokenized certificates.

    For the purposes of this provision, a tokenized certificate shall be understood to mean the representation of the shares in an electronic format that complies with the following conditions:
     
    • The information is organized in a blockchain or any other data distribution network or virtual, secure and verifiable information recording and archiving technology; and,
    • The information embodied in a tokenized certificate can be transferred electronically.

The scope of the application is State.

Specific mandates related to national alignment with specific reporting standards.

Not applicable.

Standards regarding the scope and frequency of such reports.

Not applicable.

ESG Latin America & the Caribbean Guide 2024 | Charting Sustainable Futures