Do Brazil’s new ESG regulations go far enough?

Amid the rise in importance of environment, social, and governance (ESG) principles in Brazilian markets and around the world, investors looked on in hope at the country’s securities commission CVM, waiting patiently for adequate regulations. And, at the end of 2021, the agency finally crossed ESG off its to-do list — but the regulated sector wasn’t exactly over the moon about the new rules.

The CVM resolution in question establishes broad disclosure requirements for Brazilian corporations, but many say the regulation falls short of its full potential by failing to enhance companies’ commitment to sustainable development goals. But the regulation does represent an important first step for Brazil to navigate the waters of ESG. 

The additional level of disclosure will bring extra homework for companies, either internally or by way of outsourced firms. And, most importantly ESG will become a binding commitment for corporations, with best practices shifting from being recommendations to requirements.

Under the new rules, CVM asks companies to either describe what ESG and sustainability structure they have in place, or explain why they are lacking one. This “attest-or-explain approach” can work well, provided there are practical consequences for omissions, false statements, or for not doing enough.

The checklist presented by the new regulations also show that Brazilian regulators are in sync with international requirements for climate risk (the Task Force for Climate Finance Disclosure, TCFD, for instance), United Nations sustainable development goals, as well as internationally recognized approaches to ESG methodology, policy, and...