Atalho

News

Environmental

The Central Bank of Brazil publishes new ESG regulations for the National Financial System

27/09/2021

In brief

On 15 September 2021, after public consultations were processed, the Central Bank of Brazil (BCB, initials in Portuguese) released six new rules regulating the social, environmental and climate risks in the National Financial System, which will come into force in 2022. The standards deal with the regulation of the Social, Environmental and Climate Responsibility Policy (PRSAC, initials in Portuguese); the analysis and risk management of financial institutions; sustainable impediments to contracting rural credit; and the mandatory disclosure of the Social, Environmental and Climate Risks and Opportunities Report (“GRSAC Report“) by financial institutions.

In more detail

In September 2020, the BCB launched the BC# Sustainability Agenda, with the aim of providing a framework for regulations on the subject. In the first half of 2021, it launched a series of public consultations on proposed standards in the area of ESG (environmental, social and governance) and, now, new standards on the subject have been released, aiming to bring greater clarity regarding the risks to stakeholders and greater transparency to society. Below are the main highlights of the regulations.

(I) BCB Resolution No. 139/2021

This resolution provides for the disclosure of the GRSAC Report from 1 December 2022. The key points are as follows:

a) Institutions classified in Segments 1, 2, 3 and 4 (S1, S2, S3 and S4) must disclose the GRSAC Report.       

b) The GRSAC Report must be published annually, due to the base date of 31 December, observing the maximum period of 90 days after said base date, with a more flexible term to: (i) 180 days in relation to the base date of December 2022; and (ii) 120 days in relation to the base date of December 2023.      

c) It should contain the topics associated with the social, environmental and climate risks, which is dealt with in Resolution No. 4,557/2017, namely: (i) governance of risk management; (ii) relevant actual and potential impacts; and (iii) risk management processes.      

d) The disclosure of the GRSAC Report in an open data format will be required from the base date of December 2023. 

 (II) BCB ResolutionNo. 153/2021

ThisResolutionestablishes standardized tables for the purpose of disseminating the GRSAC Report, established by BCB Resolution No. 139/2021, from 1 December 2022. The key points are as follows:

a) It makes it binding for the institutions framed in Segments 1, 2, 3 and 4 (S1, S2, S3 and S4) to add on to the report: (i) a table of governance managing the social risks, environmental risks and climate risks; (ii) a table of strategies used in the treatment of social risks, environmental risks and climate risks; and (iii) a table of the social risk management processes, environmental risks and climate risks. 

b) It recommends, but on an optional basis, the disclosure of: (i) a table of indicators used to manage the social risks, environmental risks and climate risks; and (ii) a table of business opportunities associated with social, environmental and climate issues.

(III) BCB Resolution No. 140/2021

This resolution creates Section 9 (Social, Environmental and Climatic Impediments) of Chapter 2 (Basic Conditions) of the Rural Credit Manual. This section provides restrictions on accessing rural credit due to legal or infra-legal provisions relating to social, environmental and climate issues. The key points are as follows:

a) Rural credit will not be granted to producers who are not registered or whose registration is canceled in the Rural Environmental Registry(CAR, initials in Portuguese), subject to the conditions and exceptions provided for in items MCR 2-1-12 to 15.      

b)  Rural credit will not be granted to an enterprise totally or partially inserted in the Conservation Unit, unless the economic activity is in accordance with the management plan for the Conservation Unit, subject to the provisions of law.      

c) Rural credit will not be granted to an enterprise whose area is totally or partially inserted in indigenous land.       

d) Rural credit will not be granted to an enterprise whose area is totally or partially located in lands occupied and titled by remnants of quilombo communities.      

e) Rural credit will not be granted to enterprises located in the Amazon biome: (i) when there is an embargo in force resulting from the economic use of illegally deforested areas; or (ii) in a financing operation under the embargo of the National Agrarian Reform Program, for credit applicants who have restrictions in effect for the practice of illegal deforestation, according to National Institute of Colonization and Agrarian Reform (INCRA, initials in Portuguese) records.       

f) Rural credit will not be granted to individuals or legal entities registered in the register of employers who kept workers in conditions analogous to slavery.     

(IV) National Monetary Council (CMN, initials in Portuguese) Resolution No. 4945/2021

This resolution provides for the PRSAC and the actions aimed at its effectiveness. The key points are as follows:

  1. As of 1 July 2022, financial institutions and other institutions authorized to operate by the BCB classified in Segments 1, 2, 3, 4 and 4 (S1, S2, S3, S4 and S5) must establish the PRSAC and implement actions aimed at its effectiveness.
  2. The PRSAC consists of a set of principles and guidelines of a social, environmental and climate nature to be observed by the institution when conducting its business, activities and processes, as well as in its relationship with interested parties (e.g., customers and users of the institution’s products and services, suppliers, investors in issued bonds or securities, etc.).
  3. The institution must appoint a director responsible for complying with the provisions of this resolution.
  4. Creating a social, environmental and climate responsibility committee (responsible for, among other things, the approval and review of the PRSAC), linked to the board of directors, is: (i) mandatory for an institution classified under S1 or S2; and (ii) optional, for an institution classified under S3, S4 or S5.
  5. It must be disclosed to the external public, obligatorily: the PRSAC; the actions implemented with a view to the effectiveness of the PRSAC, as criteria for its evaluation; if any, the list of economic sectors subject to restrictions in the business carried out by the institutions as a result of the subject; the list of products and services offered by the institution that contribute positively to the topic; the list of pacts/agreements/commitments (national or international) on the subject; and the mechanisms used to promote stakeholder participation, if included in the PRSAC establishment and review process.
  6. Documentation relating to the establishment of the PRSAC and the implementation of actions aimed at its effectiveness must be kept at the disposal of the BCB for a period of five years.
  7. As of 1 December 2022, Resolution No. 4,327/2014, which dealt with the guidelines for establishing and implementing the Social and Environmental Responsibility Policy by financial institutions, was revoked.

(V) CMN Resolution No. 4944/2021

This resolution amends Resolution No. 4,606/2017, which provides a simplified optional methodology for calculating the minimum requirement for Simplified Reference Equity (PRS5), the requirements for opting for this methodology and the additional requirements for the simplified structure of continuous risk management. The key points are as follows:

  1. .
  2. It defines the social risks regarding the possibility of losses for the institution caused by events associated with the violation of fundamental rights and guarantees or that act harmfully to the common interest, providing examples.
  3. It defines environmental risks regarding the possibility of losses for the institution caused by events associated with environmental degradation, including the excessive use of natural resources, providing examples.
  4. It defines climate transition risks regarding the possibility of losses for the institution caused by events associated with the transition process to a low-carbon economy, in which the emission of greenhouse gases is reduced or offset and the natural mechanisms for capturing these gases are preserved; and physical weather risks regarding the possibility of losses for the institution caused by events associated with frequent and severe weather or long-term environmental changes, which may be related to changes in weather patterns, providing examples of both.

(VI) CMN Resolution No. 4943/2021

This resolution amends Resolution No. 4,557/2017, which provides the risk management structure, capital management structure and information disclosure policy. The key points are as follows:

  1. Risk management — including environmental, social and climate — should be integrated, enabling the identification, measurement, evaluation, monitoring, reporting, control and mitigation of adverse effects resulting from interactions between risks.
  2. Financial institutions must disclose the risk levels they are willing to assume in the social, environmental and climate sectors.
  3. The risk management structure of financial institutions should encompass the resulting activities performed by: (i) a counterpart of the institution, according to specificities; (ii) the entities controlled by the institution, according to specificities; and (iii) the suppliers and third-party service providers.

Our Environmental and Sustainability team is available to provide further clarification on the subject.

Share on Social Media
Trench Rossi Watanabe
São Paulo
Rua Arq. Olavo Redig de Campos, 105
31º andar - Edifício EZ Towers
Torre A | O4711-904
São Paulo - SP - Brasil

Rio de Janeiro
Rua Lauro Muller, 116 - Conj. 2802
Ed. Rio Sul Center | 22290-906
Rio de Janeiro - RJ - Brasil

Brasília
Saf/s Quadra 02 - Lote 04 - Sala 203
Ed. Comercial Via Esplanada | 70070-600
Brasília - Distrito Federal - Brasil

Porto alegre
Av. Soledade, 550
Cj. 403 e 404 | 90470-340
Porto Alegre - RS - Brasil

press
JeffreyGroup
Nara Neri 55 11 3185.0800 | Ext.832

Ícone do Instagram
Ícone do Facebook
Ícone do YouTube
Ícone do Linkedin