HONDURAS – How is ESG currently regulated?

Discussions and regulations related to ESG criteria in Honduras have increased significantly in recent years in response to the growing global recognition of the relevance of sustainability and corporate responsibility. However, the concrete application and regulation of these criteria is still under evaluation, as it has not been consolidated and implemented at the same level as in other countries where these criteria are more advanced.

At the governmental level, actions are mostly driven in an isolated manner, prioritizing specific environmental and social aspects rather than adopting a comprehensive ESG approach. However, due to increasing international attention to sustainability issues and pressure from foreign investors, an enabling environment is being created for the implementation of more consistent policies in this area.

On the other hand, in the financial sector, certain banking entities are beginning to incorporate ESG criteria into their investment and lending strategies. However, in general terms, the corporate sector has not yet achieved full alignment with these principles.

To date, there are no mandatory ESG regulations in place in Honduras that cover all companies in a generalized manner. However, specific laws related to environmental and social and labor issues are in place, although they are not fully integrated into a comprehensive ESG regulatory framework.

For example, companies in various sectors must comply with certain environmental regulations, and there are labor laws that apply to all companies in terms of their social responsibilities. However, these regulations have not been designed with a fully integrated ESG approach.

It is worth noting that, although there is no legal obligation, some multinational companies operating in Honduras have been adopting ESG guidelines as part of their overall corporate policies.

In summary, although there is no mandatory ESG regulation, there is a set of scattered laws and regulations that could be considered as initial steps towards a more comprehensive ESG regulatory framework in the future.

Regarding regulations on climate change, natural resource use, or pollution and waste it is worth to mention that Honduras has taken steps to address climate change, so that rules and regulations are currently in place that cover environmental issues, such as the preservation of natural areas, waste management, and pollution mitigation. However, these legal provisions tend to be scattered and lack a holistic perspective on climate change or sustainability.

Regarding climate change, Honduras has ratified international treaties, such as the Kyoto Protocol, Paris Agreement, among others.

Regarding natural resources, the country has several laws that regulate issues such as mineral extraction, water management, and preservation of biodiversity.

In relation to waste management, regulations have been established that require companies to responsibly manage both industrial and domestic waste. However, it is important to note that recycling infrastructure and systems present operational limitations and challenges.

Honduras has extensive environmental legislation that requires companies in certain industries, sizes, and locations to obtain an environmental license for their operations, which is always required for financing, as well as for obtaining other government licenses and permits.

Finally, although there are various laws and regulations that address environmental aspects in the context of ESG, these regulations tend to be specific and sometimes lack coherent and comprehensive vision. As the importance of ESG continues to grow, it is likely that we will see more integration and updating of these laws in the future.

Considering the social aspect, the most important laws and regulations on human capital, product liability, shareholder opposition, and social opportunity are being discussed as well. In Honduras, various initiatives and actions are being carried out in the social area, although there was no mandatory ESG regulation at the national level. Some of the key areas related to the social pillar include:

Labor rights: Honduras has labor laws that regulate aspects such as working conditions, minimum wages and workers’ rights. However, there are challenges in the effective implementation of these laws, and work is ongoing to improve working conditions and the protection of employee rights.

Education and Health: Investment in education and public health is a major concern in Honduras. Therefore, efforts are being made to improve access to education and health care, especially in rural and disadvantaged areas.

Community Development: Several companies, both national and international, are involved in community development and social responsibility projects in Honduras. These projects often focus on areas such as education, health care and local economic development.

Diversity and inclusion: The promotion of diversity and inclusion in the workplace and in society in general is an emerging issue in Honduras, although it still has a long way to go.

On the other hand, product responsibility is partially supported by consumer protection laws, which impose certain obligations on companies regarding the quality and safety of their products. However, there is no comprehensive legislation that comprehensively addresses corporate social responsibility in this area.

In summary, while there are some laws that address different aspects of the social pillar, these tend to be mostly generic in nature and lack a comprehensive ESG approach. As with the environmental pillar, it is likely that increased awareness and external pressure will lead to more specific and comprehensive regulations in the future.

In respect of corporate governance and corporate behavior, the corporate governance framework in Honduras is based mainly on the Code of Commerce, which governs aspects such as the creation and operation of companies, the structure of the board of directors, and the fiduciary responsibilities of directors.

It is worth mentioning that financial institutions that are regulated by the National Banking and Insurance Commission of Honduras are subject to corporate governance provisions based on the provisions of the Financial System Law.

In addition, Honduras has enacted laws and regulations related to Corporate Social Responsibility. These regulations seek to promote sustainable and ethical business practices, although their implementation and scope may vary.

In terms of business ethics and corporate behavior, there is no specific regulation that establishes ESG standards of conduct. However, the country has anti-corruption and competition laws that seek to ensure ethical business behavior and prevent unfair practices.

In conclusion, corporate governance in Honduras is governed by a legal framework that addresses fundamental elements, such as organizational structure and fiduciary responsibilities, but does not yet fully incorporate an ESG perspective. As in the environmental and social pillars, reforms in this area are driven by changes in international regulations and pressure from investors to push for reforms in this area.

CENTRAL LAW in Honduras

J. Humberto Medina Alva, partner


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