The Brazilian Securities Commission (CVM) issued, on December 22, 2021, CVM Resolution No. 59 (RCVM 59), which amends CVM Rule No. 480 (CVM Rule 480). This new normative arises from Public Consultation No. 09, closed in March 2021, and brings substantial innovations on the informational regime for issuers of securities. Indeed, the reform promotes a reduction in the cost of compliance for issuers and greater accessibility of information to investors by eliminating redundancies and simplifying the content required in the Reference Form, the main document of publicly-held companies in Brazil.
However, most importantly, through RCVM 59, CVM in an unprecedented way establishes criteria and requirements for the disclosure of information on environmental, social and governance aspects, which was previously a mere deliberation of issuers to attract investors engaged in ESG aspects, and it was not foreseen in any regulation of the autarchy.
Among the main changes is the inclusion of a specific item in the Reference Form, in which the issuer must indicate:
- whether the issuer discloses ESG information in an annual report or other specific document elaborated for this purpose;
- the methodology or standard used in preparing the aforementioned report or document;
- whether this report or document is audited or reviewed by an independent entity and, if applicable, this entity must be identified;
- the page on the internet where the report or document can be found;
- if such report or document considers the disclosure of a materiality matrix and ESG key performance indicators, and which are the material indicators for the issuer;
- whether the report or document considers the Sustainable Development Goals (SDG) established by the United Nations and what are the material SDGs for the issuer's business;
- whether the report or document considers the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) or recommendations for financial disclosures from other entities recognized and related to climate issues; and
- if the issuer carries out greenhouse gas emission inventories, indicating, if applicable, the scope of inventoried emissions and the page on the internet where additional information can be found.
In addition, if the issuer does not adopt any of the above measures, RCVM 59 requires an explanation on: (i) non-disclosure of ESG information; (ii) the non-adoption of the materiality matrix; (iii) the non-adoption of key ESG performance indicators; (iv) failure to audit or review the disclosed ESG information; (v) the non-consideration of the SDGs or the non-adoption of the recommendations related to climate issues, emanating from TCFD or others recognized entities, in the disclosed ESG information; or (vi) failure to carry out greenhouse gas emission inventories.
Furthermore, CVM innovated by including in the risk factors section new specific items related to (i) social issues; (ii) environmental issues; and (iii) climate issues, including physical and transition risks – and, when reporting a risk, companies will also have to say whether they have policies to deal with it, their objective and strategy. Previously, CVM Rule 480 established only a general item for social and environmental issues, without distinction. Moreover, under RCVM 59, issuers shall describe the main aspects related to the fulfillment of legal obligations and regulatory issues related to environmental and social issues.
The social aspect was represented in RCVM 59 by diversity. In this sense, CVM requires the description of employees by self-declared gender identity and self-declared identity of color or race and also establishes that, when describing their management bodies, issuers shall identify them by:
- total number of members, grouped by self-declared identity of gender;
- total number of members, grouped by self-declared identity of color or race;
- total number of members grouped by other attributes of diversity that are deemed relevant;
- if any, specific objectives that issuers have in relation to the diversity of gender, color or race or other attributes among members of their management bodies and their fiscal council; and
- role of management bodies in the assessment, management and oversight of climate-related risks and opportunities.
As for governance, specifically in relation to the board of directors, issuers shall describe the channels established in order to inform their directors regarding critical issues related to ESG and compliance topics and practices, if any. Also, the RCVM 59 establishes the description of the main performance indicators taken in consideration in the attribution of officers, including, if applicable, indicators related to ESG matters. Further, CVM requires that companies report the ratio between the highest individual compensation (including variable compensation) and the median individual compensation of all employees.
RCVM 59 takes effect on January 2, 2023, and although it does not create obligations for publicly-held companies in Brazil regarding ESG aspects nor establish penalties if they fail to comply with them, it indeed reflects a new market direction and investor demand towards social and environmentally responsible companies.
The aforementioned new information disclosure criteria will make it easier and more accessible to differentiate companies that have social and environmental policies from those which does not. It is, certainly, a great and significant step towards establishing a sustainable capital market in Brazil, following a similar movement already seen in other jurisdictions such as in the United States of America and Europe.
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