ESG in the Boardroom: Corporate Disclosure Requirements and Data Governance Developments

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The performance and good practices of companies according to environmental, social, and governance (ESG) criteria has increasingly become an indicator of diligent management for any company with potential for long and even short-term financial returns, as well as reputational benefits. Some may also say that good ESG practices bring with them great opportunities for companies – such that in the near future the demands from stakeholders will be so high when it comes to ESG standards that those companies who have not adapted to the new reality will have a tendency to fail.

The definition of a sustainable policy of risk control and mitigation, alongside the management and disclosure of the data involved, has become a fundamental trait of companies that aim to solidify their position in the future of the industry. Good practices in relation to ESG criteria and the construction and transparency of a more sustainable environment for companies have become decisive factors to ensure the trust of investors, consumers and companies’ business partners, as well as to respond to society’s growing demands for a more humane approach to business activities.

In addition to the reputational scope, a more focused approach to ESG is being reinforced through ever-stricter legal requirements, national and international voluntary standards, regulatory agencies, financial institutions, among others. As a result, ESG-related issues such as sustainability, climate change, social responsibility and diversity are resulting in greater repercussions in courts in Brazil and all over the world.

At the same time, many opportunities are being created for sustainable businesses and practices, supported by Brazilian legislation, including extensive forms of incentive (e.g., fiscal, remuneration through the establishment of certificates and bonds) and the ongoing discussion over the regulation of the Brazilian carbon credit market.

In view of the above, it is fundamental to map and avoid or mitigate ESG-related risks and take advantage of the opportunities that this new investment and development environment presents, especially for sustainable, social and environmental investments.

Main concepts and global scenario

ESG refers to the internal practices and policies for the management of an organisation, based on generally voluntary criteria aimed at regulating, guiding and supervising the actions and conduct of the organisation to ensure that its policies and internal and external relations comply with the legislation and additional best practices of environmental protection, social assistance and commitment and corporate governance.

Awareness, adherence to and monitoring of ESG criteria within companies is subject to increasing demands from society, the market, investors, consumers, regulatory agencies and international organisations. This evolution in the global marketplace and the various pressures for compliance also comprise the understanding that social and sustainable investment goals should not only be aligned with companies’ financial objectives, but also reflected and included in companies’ core values. Through this trend, institutions are being legally, morally and even financially encouraged to gather the data regarding their material impact on their environment, publicly disclose such information and outline efficient internal policies for risk mitigation and control.

This new scenario creates growing opportunities for the establishment of sustainable businesses, in which the business model and purpose itself is geared towards sustainability objectives, to the constitution of benefits for the environment and for society, establishing legacies in the communities involved.

Sustainable businesses include in their practices the creation of structures to restrict the use and maintain the environmental preservation of areas, reforestation projects, carbon credit projects, clean energy use and distribution projects, and biodiversity protection. Additionally, sustainable businesses demand the periodic evaluation of the company’s supply chain to determine if human rights are being respected; if data is being used responsibly; if diversity, equity and inclusion are part of the culture; and if a robust anti-corruption compliance programme is being adhered to, among other factors.

ESG regulations in Brazil

Besides the more traditional normative framework focused on the protection of the environment, additional criteria (e.g., human rights, labour relations, corporate compliance and international standards with effects on companies in Brazil) involving a wide variety of themes are increasingly present in the day-to-day operations of Brazilian organisations.

In the Brazilian regulatory scenario, we highlight the recent rules published in 2021 and 2022 by the Central Bank of Brazil (BACEN), the National Monetary Council (CMN), the Brazilian Securities Commission (CVM), the official Brazilian Stock Exchange (B3) and the Superintendence of Private Insurance (SUSEP).

BACEN’s ESG rules and respective obligations

BACEN is an autonomous agency of a special nature that, since 2021, has been characterised by the absence of any ties to a government ministry, supervisory or oversight authority, or by being subject to hierarchical subordination, rather maintaining its own technical, operational, administrative and financial autonomy, in accordance with the term of office of its directors and its stability. It is Brazil’s main monetary authority, responsible for implementing the monetary policy and issuing the national currency to ensure price stability. As such, it exists as a ‘bank of banks’, providing for other financial institutions and governmental bodies, and supervising the financial system at large. Since 2014, BACEN has devoted much attention to the work of laying the necessary foundations for financial institutions to act in ways that foster the development of sustainable finance.

Initially, there was the milestone of BACEN Resolution 4,327/2014,[2] a legal framework that provides the principles and guidelines that must be observed in the establishment and implementation of the Policy of Socio-environmental Responsibility by financial institutions and others authorised to operate by BACEN, including for the purposes of socio-environmental risk management (defined as the possibility of losses suffered by institutions arising from socio-environmental damages).

However, that Resolution did not provide a precise definition of criteria and mechanisms for social and environmental risk assessment, indicating that the regulated institutions themselves should establish such criteria and respective action plans. Therefore, with the proper study and knowledge of the factual impacts that the institution advocates or may advocate for, a company can determine effective ESG goals specific to its own circumstances. BACEN Resolution 4,327/2014 is currently applicable in a partial and transitory manner, considering details in each of the rules published in 2021 by BACEN, and as of 1 December 2022, it will be repealed, pursuant to the provisions of CMN Resolution 4,945/21.[3]

Additionally, in 2017, BACEN published Resolution 4,557/2017,[4] providing for a risk management framework that identifies, measures, assesses, monitors, reports, controls and mitigates social and environmental risks. This 2017 resolution was subject to changes and updates in 2021, based on the new rules published by BACEN.

In this regard, on 15 September 2021 and 6 October 2021, BACEN approved a set of rules related to the regulation on environmental, social and climate risks, namely CMN Resolution 4,943/2021,[5] CMN Resolution 4,944/2021,[6] CMN Resolution 4,945/2021, BACEN Resolution 139/2021,[7] Normative Instruction 153/2021 and BACEN Resolution 151/2021.[8]

CMN Resolution 4,943/2021 and CMN Resolution 4,944/2021 refer to risk management structures, adding or detailing the need and form of identification, measurement, classification, evaluation, monitoring, control and mitigation of social, environmental and climate risks, among other things. CMN Resolution 4,943/2021 is applicable to risk management by financial institutions and other similar institutions, amending Resolution 4,557/2017. CMN Resolution 4,944/2021 amends Resolution 4,606/2017, providing for a simplified risk management structure in order to be an applicable alternative as an option for singular credit cooperatives, non-banking institutions operating in credit granting, except for development agencies and non-banking institutions operating in the gold and foreign currency markets, or as fiduciary agents.

Consequently, risks of a social nature are defined as the possibility of the occurrence of losses to the institution caused by events associated with the violation of fundamental rights and guarantees or acts harmful to the common interest. Environmental risks are defined as the possibility of losses to the institution caused by events associated with environmental degradation. The Resolution also generally indicates that such risks include acts or activities that, despite being usual, legal and not criminal, negatively impact the reputation of the institution because they are considered harmful to the common interest or as a result of environmental degradation.

Furthermore, there are innovations to BACEN’s rules, starting with the definition of climate risk, which was not addressed prominently by the previous regulatory framework. Climatic risk is divided into two parts: transition risk and physical risk. In transition climate risk, losses are caused by events associated with the process of transition to a low carbon economy. Physical climate risk, in turn, consists of frequent and severe weather events or long-term environmental changes related to changes in weather patterns.

In order to deal with these risks, financial institutions must provide management structures for the identification and monitoring of risks incurred due to their own products, services, activities or processes, as well as the activities performed by relevant third parties, including counterparts of the institution, entities controlled by the institution, suppliers and outsourced service providers for the institution.

In addition to risk management, BACEN’s new rules emphasise the need for compatibility of the policies of financial institutions and other institutions authorised to operate by BACEN with the Social, Environmental and Climate Responsibility Policy (PRSAC), an improved version of the Social and Environmental Responsibility Policy previously required.

PRSAC is regulated by means of CMN Resolution 4,945/2021, dealing with principles and guidelines of a social, environmental and climatic nature that must be observed by the institutions with BACEN’s authorisation to operate, in the conducting of their businesses, activities and processes, as well as in their relations with interested parties.

The financial institutions must consider this policy in the evaluation of their products and services and must implement PRSAC and actions aimed at its effectiveness, including, among other things, a periodical evaluation through an internal audit by the institution, based on clear and verifiable criteria. In the case of institutions belonging to the same prudential conglomerate, or to the same credit cooperative system, the PRSAC must be unified.

Also, in view of the increasing need to disclose information related to ESG risks, especially climate risks, BCB Resolution 139/2021 establishes the requirement for the annual disclosure of the Social, Environmental and Climate Risks and Opportunities Report (the GRSAC Report), which is mandatory for institutions classified in segments S1, S2, S3 and S4, and there are also guidelines for the format and information of this report in BCB Normative Instruction 153/2021.[9] The report must mandatorily contain information related to the governance of social, environmental and climate risk management, in addition to the actual and potential impacts on the strategies adopted regarding risks and management processes, and it must be disclosed on the official website of the financial institution on an annual basis. Other information, such as quantitative indicators used in risk management, social, environmental and climate business opportunities, are optional.

Regarding the disclosure of information related to ESG, it is also necessary to consider the determinations of Resolution BCB 151/2021, which defines the obligation of the institutions of segments S1, S2, S3 and S4 to send to BACEN information on the assessment of social, environmental and climate risks in the context of their exposure in credit operations and securities, and their respective debtors.

CVM ESG rules and respective obligations

The CVM is an autonomous agency under a special regime, under the Ministry of the Economy, with its own legal personality and assets, independent administrative authority, absent from hierarchical subordination, with fixed term and stability of its directors, and financial and budgetary autonomy, whose objective is inspecting, regulating, governing and developing the securities market in Brazil. In view of its Regulatory Agenda proposed for 2021, the CVM edited Resolution CVM 59/2021,[10] amending provisions of CVM Instructions 480/2009[11] and 481/2009,[12] related to the informational regime of securities issuers. Also in 2022, such amendments were consolidated, through CVM Resolution 87/2022,[13] into the current CVM Normative Instructions 80/2022[14] and 81/2022.[15]

It is worth noting that the CVM emphasises that the new regulatory context of its scope does not require that issuers of securities adopt specific practices, but only that they disclose those practices that are or are not adopted.

Thus, the concept referred to by the CVM as ‘practice-or-explain’ was adopted. In other words, those that do not promote ESG practices will need to explain the reason for this absence. As such, when applicable, the CVM requires an explanation for the failure to:

  • disclose ESG information;
  • adopt a materiality matrix;
  • adopt ESG key performance indicators;
  • audit or review disclosed ESG information;
  • conduct greenhouse gas emission inventories; and
  • comply with certain international standards, including climate issues and the Sustainable Development Goals (SDGs), which were released within the United Nations with the aim of ending poverty, protecting the environment and climate and ensuring that people may enjoy peace and prosperity. Roughly 67 per cent of Brazilian companies link their disclosed information with SDGs, reporting development goals for their SDG-related businesses.[16]

In this way, the CVM Normative Instructions 80/2022 and 81/2022, in accordance with CVM Resolutions 59/2021 and 87/2022, address the rules on disclosure of information by issuers of securities. In 2021, the CVM added to the information contained in the Reference Form, with the objective of increasing transparency in the disclosure of ESG practices from listed companies. By doing so, certain specific requirements are established for the disclosure of information related to ESG and sustainability issues.

Working jointly with CVM through the execution of cooperation agreements, B3 has introduced measures to be adopted by its listed companies regarding ESG issues. On 17 August 2022, B3 opened a public consultation[17] on a proposal for an Annex to the Regulation for Listing of Issuers and Admission to Trading of Securities, with the objective of gathering contributions from market agents, companies, investors, regulators, organisations and other interested parties to align B3’s rules with the recent regulatory movement. This is an important step for the stock exchange to strengthen its governance rules in light of diversity and inclusion criteria.

B3 proposes that compliance with the measures set forth in the Annex be carried out by the companies in the ‘practice-or-explain’ model. In this regard, four ESG measures are provided:

  • to elect as a full member of the board of directors or statutory board at least one woman and one member from a minority community, observing the transition period, or a member who meets both requirements;
  • to establish a procedure for the nomination of members of the board of directors and of the statutory management in the by-laws or in the nomination policy, including, at least, criteria of:
    • complementarity experiences; and
    • diversity in terms of gender, sexual orientation, colour or race, age group and inclusion of people with disabilities;
  • to define, in the compensation policy or practice, performance indicators linked to ESG themes or targets, when there is variable compensation for members of the board of directors or statutory management; and
  • to prepare and to disclose a document, approved by the board of directors, on ESG guidelines and practices, with the inclusion of minimum content, including:
    • combat against discrimination;
    • respect for human rights and labour relations;
    • defence of animals against suffering and mistreatment;
    • protection of the environment against harmful activities; and
    • treatment of solid waste and hazardous chemicals, as well as corporate governance and compliance mechanisms that indicate how such ESG guidelines and practices are implemented in the company.

Other regulations: SUSEP and carbon credits market decree

The increasing attention to ESG has resulted in the further development and carrying out of sustainable business, which encompasses those businesses and investments in activities, products or services aimed at achieving sustainability-related goals with regard to benefits to the environment and society, to bring legacies to the communities impacted by the respective projects.

Against this backdrop, within the scope of regulatory standards in relation to insurance, SUSEP, an autonomous agency subordinated to the Ministry of Economy and responsible for the control and supervision of the insurance, private pension, capitalisation and reinsurance markets, on 27 June 2022, incorporated ESG criteria and practices into its structures and policies. In this regard, among the main topics under the spotlight are climate change and the need for a greater and better understanding of climate risks to promote a more efficient allocation of capital and avoid abrupt adjustments that may result in disruptions to the financial system. In this context, SUSEP Circular 666/2022[18] was published, and came into force on 1 August 2022. It provides for sustainability requirements to be met by insurers, open complementary pension fund entities, capitalisation companies and local reinsurers, considering their respective roles in the insurance industry, both as risk managers and policyholders, and as investors, as well as taking into account their duty to promote economic, social and sustainable development, especially when considering the qualifications of such entities to perform risk assessment and pricing.

While focusing on climate matters, SUSEP calls for the evaluation of potential and factual risks considering three subsects: transitional, physical and litigation risks. Transition climate risks regard the possibility of losses for the institution caused by events associated with the transition to a low carbon economy, in which emissions of greenhouse gases are reduced or compensated, and the natural mechanisms for capturing such gases are preserved. Physical climate risks are those caused by events associated with frequent and severe weather or long-term environmental changes linked to the alteration of weather patterns. Finally, litigation risks arise from losses due to claims in liability insurance or direct actions against the supervised company, both due to failures in managing physical or transitional climate risks.

In addition, Brazilian legislation provides legal incentives for sustainable projects and activities. For example, Decree No. 11,075/2022[19] institutes the procedures for preparing the Sectoral Plans for Climate Change Mitigation and establishes the National System for Reducing Greenhouse Gas Emissions (SINARE).

With regard to the Sectoral Plans, the Federal Decree defines them as sector-based government planning instruments, for the fulfilment of climate goals aimed at the consolidation of a low-carbon economy and compliance with the voluntary commitment undertaken by Brazil under the Paris Agreement through a Nationally Determined Contribution (NDC). The Sectoral Plans shall operate through the establishment of gradual, measurable and verifiable greenhouse gas emission reduction targets. In fact, the sector agents may present their proposals for the establishment of greenhouse gas emission reduction curves, taking into account the long-term goal of climate neutrality informed in the NDC.

As determined by the Brazilian National Policy on Climate Change (PNMC), the following sectors are to be within the scope of the Sectoral Plans, as outlined by Decree No. 9,578/2018,[20] which consolidates the PNMC:

  • the generation and distribution of electric power;
  • urban public transportation and interstate passenger and cargo transportation systems;
  • the transformation and durable consumer goods industry;
  • the fine and base chemical industries;
  • the paper and cellulose industry;
  • mining;
  • the civil construction industry;
  • health services; farming; and
  • agriculture and steel.

Also, according to Decree No. 11,075/2022, SINARE is intended to serve as a single central registry of greenhouse gas emissions, removals, reductions and offsets, and of acts of trade, transfers, transactions and retirement of certified emission reduction credits.

SINARE will also allow, without the need for generating certified emission reduction credit, the registration of carbon footprints of products, processes and activities, carbon and native vegetation, carbon in the soil, blue carbon and carbon stock units.

Also, on these issues, the Brazilian National Congress is currently discussing bills on the carbon credits market, in addition to the recently published Decree No. 11,075/2022. It should be noted that Brazil is considered one of the countries with the greatest opportunities for such a market.


The integration of ESG structures and practices in companies and the disclosure of sustainability reports is a progressively widespread management model on a global scale. Climate change alongside social equality and compliance policies are a recurrent theme due to their effects on society, companies, investors and being the target of increasing pressure by such actors.

For companies, there is growing recognition of how climate change results in risks, which may impact their business models and purposes, as well as bring new opportunities to be considered. The understanding of the relevance of social inclusion has become a guideline for any company that seeks to fit into the ever-evolving diversity parameters. Non-compliance with anti-corruption policies, both internal and external, can condemn a business in the public eye. In this sense, companies are more frequently required to commit to such topics, disseminating voluntary criteria for risk management structures and reporting formats for information disclosure.

Concerning the potential effects of the climate variable, diversity integration, data management and compliance on businesses and the ensuing impact on the financial market, Brazilian regulatory bodies such as BACEN and CVM have promoted the enactment of regulations on ESG subjects, with voluntary criteria becoming eventual obligations for companies.

For now, the published regulatory framework contains a high degree of detail, and it is important for companies and institutions to have a clear understanding of how to use it. This is especially relevant for those that operate outside Brazil, and there may be the application of standards from different jurisdictions, which, despite being similar, must be given the due attention and be subject to detailed and specific analysis.


[1] Fernanda Vianna Stefanelo and Eloy Rizzo are partners, and Helena Micaela Ygosse Battisti and Thomas Carvalho van Bellen are lawyers at Demarest Advogados.

[16] KPMG International, ‘The Time has Come: The KPMG Survey on Sustainability Reporting 2020, Resultados Brasil’, 2021, available at, accessed on 2 October 2022.

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