The Brazilian Securities and Exchange Commission ("CVM") just enacted a Resolution including ESG reporting requirements to the Periodical Form that listed companies and securities issuers must submit to the Comission. On March 2021, the Comission launched a public consultation proposing certain changes to the Periodical Form which in essence included the changes that the new Resolution now regulate.
The Form of Reference is a document that securities issuers must fulfill every time they intend to apply for a public offering or on an annual basis, up to five months after the end of the fiscal year, which in Brazil usually coincides with the calendar year.
More specifically, the new Resolution requires that the Form shall include whether:
1. issuers disclose environmental, social and governance ("ESG") information on their annual reports or on another document specifically prepared for this purpose;
2. such report or similar document cosiders a materiality matrix or key indicators of ESG metricts and, if so, which are the indicators that the issuer considers material;
3. the report considers the Sustainable Development Goals (SDG) or the Recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) or the recommendations of other well recognized entity regarding climate change; and
4. if the issuer prepares GHG inventories or monitors its carbon emissions.
The Resolution adopts the practice or explain policy, which CVM has used in the past, including for corporate governance matters and this means that the denial or failure to comply with any of the topics above will require companies to explain why. The practice or explain is a well recognized way to induce a desired practice, considering that as time goes by, it becomes more difficult for companies to explain to their shareholders or the public in general why certain good practices were not adopted.
The Resolution will come into force on January 2023, but this means that it will cover the practices adopted during fiscal year 2022.
Needless to say that the adoption of sustainability reports by listed companies and securities issuers tend to spread to the market, starting from the issuer's supply chain.
Thus, together with the other regulation issued by financial markets' Brzilian regulators, the new CVM rule has a great potential to define how to continue to do business in Brazil.
Our firm is available to provide further clarification on the draft Rule or to assist you with this or any other ESG matter.