PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol-Alonso, Ferraiuoli LLC
corporation pursuant to the business judgement rule, directors are expected to fulfil their duties of care and loyalty, which encompass risk oversight and internal controls. This involves: • understanding and assessing the major risks the corporation faces; • ensuring that appropriate risk management and internal control systems are in place; and • periodically reviewing the effectiveness of these systems. Internal controls are systems, processes and policies designed to: • safeguard the corporation’s assets; • promote accurate financial reporting; and • ensure compliance with applicable laws and regu - lations. In addition to existing regulations concerning the use of natural resources that extend from federal to local law (for example, regarding air and water pollution) which vary depending on the industry sector, Act 33-2019 adopted a new public policy to: • address climate change; • reduce and mitigate the effects of greenhouse gas emissions; • address deforestation on the island; • promote a sustainable economy; and • incentivise renewable energy sources, as part of the government’s energy diversification and transformation policies under Act 82-2010 (Renew - able Energy and Diversification) and Act 17-2019 (Energy Public Policy Act), among others. 7. Environmental, Social and Governance 7.1 ESG Requirements In December 2015, the Puerto Rican government enacted Act 233-2015, which amended the Corpora - tions Act to allow the creation of public benefit cor - porations. Public benefit corporations are required, among other things, to file annual reports and social benefit reports regarding:
• environmental matters (product cycle manage - ment, reduction of waste and residues, use of clean technologies, reduction of a negative envi - ronmental footprint, and responsible use of natural resources); • corporate operations (information transparency, economic impact in the communities where the corporation operates, and health and safety initia - tives); and • human capital (policies and practices against discrimination, elimination of work violence, and development of human capital). Also, the reports must set out the public benefits that the entity brings to the community in which it oper - ates. In addition, a significant number of companies prac - tise various levels of corporate social responsibility. Generally, Puerto Rican companies and business leaders are actively involved in an array of non-profit entities that provide a wide variety of services and benefits to local communities. 7.2 ESG Developments Puerto Rico has not seen a broad retreat from ESG in its corporate governance framework yet ESG con - tinues to be driven primarily by US federal require - ments applicable to Puerto Rico contractors and cer - tain regulated sectors and market expectations from lenders, investors and counterparties while calibrating the scope and tone of external ESG communications in light of heightened scrutiny of “greenwashing” and “social washing”. From a components perspective: • (E) climate and energy topics remain active, particularly where projects implicate emissions or renewable energy targets, but reporting is increas - ingly tied to specific investor/lender information requirements; • (S) issues (workforce policies, health and safety, anti-discrimination and community impact) con - tinue to be relevant in Puerto Rico although com - panies are more cautious about public positioning and are prioritising measurable programmes and documentation; and
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