ESG 2024 Comparisons

Brazil has witnessed significant advancements in ESG and sustainability regulations, with a particular emphasis on enhancing corporate governance structures and environmental accountability.

Additionally, new guidelines have been established for the responsible management of resources and achieving carbon neutrality, reflecting Brazil’s commitment to global climate targets. There has also been a growing trend to integrate social issues, such as diversity and human rights, into corporate governance strategies, reflecting the increasing importance of the “S” and “G” pillars within the ESG framework.

Ecological Transition Plan and Growth Acceleration Programme

A significant milestone was the launch of the Growth Acceleration Programme in August 2023, which includes investments of BRL1.7 trillion aimed at reducing inequality, accelerating economic growth, and facilitating the country’s ecological transition. Alongside this programme, the Ecological Transition Plan was introduced, focusing on fostering development through environmental preservation and addressing climate change.

This Plan outlines new credit lines for sustainable development, the establishment of a regulated carbon market, the issuance of sustainable sovereign bonds, and a restructured Climate Fund to finance activities related to technological innovation and sustainability.

Investments in Energy Transition

Another noteworthy aspect has been Brazil’s efforts regarding energy transition. Brazil invested BRL34.8 billion in energy transition initiatives in 2023, covering areas such as renewable energy, carbon capture, green hydrogen and electric vehicles.

In September 2023, during the Climate Ambition Summit at the 78th UN General Assembly, Brazil announced an increase in its greenhouse gas reduction target to 48% by 2025 (an increase from the previous target of 37%) and reiterated the government’s commitment to achieving zero deforestation by 2030.

Brazil as Host Country for COP 30

In December 2023, the decision to host the 30th Conference of the Parties to the United Nations Framework Convention on Climate Change (“COP 30”) in Brazil, from 10 to 21 November 2025, was formally approved. The Brazilian government officially announced that COP 30 will take place in Belém, in the State of Pará ‒ marking the first time a COP will be held in an Amazonian city.

Brazil has seen significant developments in social issues, such as the following.

Federal Law No 14,457/2022, “Employ More Women” Programme

Federal Law No 14,457/2022 amended the Consolidation of Brazilian Labor Laws to assign new responsibilities to Internal Commissions for Accident Prevention and Harassment (CIPA, by its acronym in Portuguese) concerning prevention of sexual harassment.

According to Article 23 of the Law, to promote a healthy and safe work environment that encourages the inclusion and retention of women in the labour market, companies must adopt, among other measures: (i) procedures for receiving reports of sexual harassment and violence; and (ii) training actions for employees on topics related to violence, harassment, equality and diversity.

Federal Law No 14,611/2023, Equal Pay Law

Federal Law No 14,611/2023 came into effect in the first half of 2024 and addresses wage equality and remuneration criteria between women and men. The Law requires companies with 100 or more employees to publish biannual reports on salary transparency and remuneration criteria. The reports must provide information that allows for comparisons between salaries and the proportion of positions held by women and men, along with information that can provide statistical data on other possible inequalities arising from race, ethnicity, nationality and age.

When inequalities are identified, companies must present and implement an action plan to mitigate the disparity. Failure to publish the reports may result in an administrative fine of up to 3% of the employer’s payroll, limited to 100 minimum wages.

Bill of Law No 572/2022, National Framework on Business and Human Rights

The Bill intends to create the National Framework on Human Rights and Business and to establish guidelines for promoting related public policies. The current text of the Bill provides for human rights due diligence for companies domiciled in or economically active within Brazil and sets for joint liability for human rights violations in the supply chain.

National Human Rights Policy

In 2023, the federal government established an Interministerial Working Group led by the Ministry of Human Rights (see 4.1 Soft Law Becoming Hard Law), which is currently in the phase of gathering relevant information from civil society to develop a proposal for the National Human Rights and Business Policy. The group will also propose measures and actions to enhance the effectiveness of public policies aimed at regulating corporate actions in the promotion and defence of human rights; the repair and monitoring of human rights violations; and the implementation of corporate policies aligned with the guidelines of national and international standards.

Corporate governance has undergone significant transformations, driven by an increasing demand for enhanced transparency, accountability and ethical practices within businesses.

Resolution CVM No 193

A key milestone in governance in 2023 was the issuance of Resolution No 193 by the Brazilian Securities and Exchange Commission (CVM, by its acronym in Portuguese), which will be detailed in 5. Transparency and Reporting. In short, the Resolution requires the preparation and disclosure of sustainability-related financial information reports based on the international standards established by the International Sustainability Standards Board (ISSB) by publicly traded companies, investment funds and securitisation entities. The aim is to improve the transparency and quality of information provided to the market, particularly concerning ESG-related risks and opportunities.

New Version of the B3 Issuer Regulation

Another significant development was the introduction of the new version of the Issuer Regulation by B3 (Brazil’s main stock exchange), which took effect in August 2023. This Regulation establishes rules and procedures for issuers listed on the stock exchange or that have securities admitted to trading, incorporating changes that impact ESG measures in alignment with the United Nation’s Sustainable Development Goals (UN SDGs), particularly those specified in SDG 5 (Gender Equality) and SDG 10 (Reduced Inequalities).

Key updates include (i) the adoption of diversity practices in the composition of companies’ management bodies, requiring that companies elect at least one woman as a full member of the board of directors or executive management and one member from an underrepresented community, such as individuals identifying as Black, Brown, or Indigenous; members of the LGBTQIA+ community; or persons with disabilities; and (ii) in cases involving variable compensation for management members, the establishment of performance indicators related to ESG, which must be integrated into company policies or remuneration practices.

Brazil’s Business Integrity Pact

In 2023, the Office of the Comptroller General (CGU, by its acronym in Portuguese) launched the Brazil Business Integrity Pact. This initiative encourages companies operating within Brazil to voluntarily commit to public business integrity.

The primary objectives of the Brazil Pact are:

• to foster integrity within the Brazilian private sector, encouraging institutions to cultivate an organisational culture that combats corruption and promotes socially relevant issues;
• to disseminate knowledge regarding business integrity; and
• to raise awareness among companies about the importance of adopting concrete actions to positively transform the corporate environment and their relationships with the public sector and society.

The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM)

CVM has been a strong advocate for transparency in corporate disclosures related to ESG. In addition to the previously mentioned Resolution No 193, issued in 2023, CVM updated its Resolution No 59 in 2022. This revision enhanced the requirements for ESG-related disclosures in the financial statements of listed companies and aims to provide greater clarity to investors regarding the risks and opportunities associated with sustainable practices, prompting many companies to refine their strategies to attract foreign capital and align with global market expectations.

Federal Budget Oversight Board (Tribunal de Contas da União – TCU)

TCU is planning to implement a new monitoring tool that seeks to integrate the assessment of governance and management processes with environmental responsibility and sustainability initiatives across federal public administration entities.

Sectoral Regulatory Agencies

Sectoral regulatory agencies, such as the National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL,) and the National Agency of Petroleum, Natural Gas, and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis – ANP), have established regulations to promote the use of renewable energy and reduce carbon emissions. For instance, ANEEL is advancing a regulatory agenda focused on energy transition to enhance discussions on the impacts of climate change, while ANP regulates the reduction of greenhouse gas emissions in the oil and gas sector.

Moreover, as detailed in 5.1 Key Requirements, the Central Bank of Brazil oversees the annual preparation of reports on social, environmental and climate risks and opportunities by financial institutions; and the Superintendence of Private Insurance outlines sustainability requirements to be observed by insurance companies, open pension entities, capitalisation companies and local reinsurers.

ESG-related regulations encompass a broad range of industries and sectors. However, due to the nature of their activities, certain sectors may face greater regulation in the coming years. Below are a few examples.

Energy Sector

The energy sector is especially relevant in the environmental context, particularly due to its direct contribution to climate change, as it accounts for a substantial portion of global carbon emissions. Companies within this sector are experiencing pressure to implement sustainable practices, such as reducing emissions, investing in renewable energy sources and managing waste more efficiently.

In the fuels sector, there remains a strong reliance on fossil sources. Nevertheless, research into biodiesel production is gaining traction as a more sustainable alternative. Another important area of research involves carbon dioxide sequestration, which can be converted into carbon monoxide for use in the mining industry, where it serves as a reducing agent in mineral production. This process represents the transformation of an environmentally harmful waste product into a value-added commodity.

In the electricity sector, there is a growing demand for the replacement of coal-fired power plants, in line with the goal established at COP 26 to phase out coal mining by 2030. In Brazil, there has been significant expansion in wind and solar energy generation, accompanied by advanced studies aimed at increasing the share of these sources in the national energy matrix.

Livestock and Agriculture Sector

The Brazilian agribusiness sector is heavily influenced by environmental factors (eg, illegal deforestation, carbon emissions and water use reduction) as well as social aspects involving labour practices and working conditions. Consequently, companies in this sector are encouraged to adopt sustainable agricultural practices and demand greater transparency in supply chains.

Transportation Sector

Environmental concerns are also particularly relevant in the transportation sector, focusing on greenhouse gas emissions, material recycling and implications for urban mobility. Companies in this segment are increasingly incentivised to adopt vehicles powered by alternative energy sources and sustainable production practices. Initiatives, such as the ESG Cargo Project by the National Land Transportation Agency (ANTT, by its acronym in Portuguese), aim to promote an ESG-focused approach within the road transportation sector, integrating best practices into the organisational culture of the companies within the sector and into the public concession agreements.

Mining Sector

There is a significant movement within the mining sector to reduce emissions of carbon dioxide, heavy metals, halogenated and sulphur compounds, as well as volatile gases arising from extraction processes. The sector’s reputation has been adversely affected by waste disposal issues, particularly due to severe environmental disasters in recent years.

Innovative studies in this area are focusing on new technologies for monitoring tailings dams, as well as alternative methods for disposing of and reusing mining waste, which can serve as inputs for other industries.

Efforts are also underway to reforest and rehabilitate mined areas to mitigate environmental impacts following mine closures, along with incentives for large companies in the sector to set targets aimed at achieving net-zero carbon emissions within the next 15 years.

Multilateral Trade Agreements

Trade agreements, such as the Mercosul-EU agreement (currently awaiting ratification), hold the potential to boost Brazilian exports to the European Union. However, specific restrictions imposed by EU countries, such as the potential for sanctions on Mercosul products sourced from deforested areas, could become trade barriers if Mercosul nations fail to meet environmental protection requirements.

Similarly, the EU’s anti-deforestation law, set to take effect on 30 December 2024, will prohibit the importation of commodities produced in deforested regions. This law poses significant challenges for the Brazilian government, as commodities at risk of sanctions (including coffee, beef, cocoa, rubber, soy and timber) account for over 30% of Brazil’s exports to the European market.

International Organisations and Forums

Brazil is member of organisations such as the United Nations and forums like the G20, which consistently emphasise the need for adopting ESG practices and advocate for measures aligned with global governance and environmental policies. Recently, the US State Department expressed its commitment to partnering with Brazil as part of its G20 agenda to combat hunger and poverty, mobilise against the climate crisis and enhance global governance effectiveness.

The United Nations Climate Change Conference and other multilateral forums have imposed commitments on Brazil concerning carbon emission reductions, reforestation and biodiversity protection. In 2023, Brazil reaffirmed its active participation in these forums but faced tensions among economic sectors, such as agribusiness and mining, that resist certain international demands.

International Financial Institutions

Measures implemented by international financial institutions, such as the World Bank, the International Monetary Fund, and the Inter-American Development Bank (IDB), also influence the advancement of ESG themes in Brazil. For instance, the IDB approved a financing line of up to USD1.2 billion for Brazil aimed at improving productivity and resilience in the agricultural sector, enhancing revenues, and expanding access to basic services in rural areas, thereby promoting sustainable agricultural development.

Global Geopolitical Conflicts

Global geopolitical conflicts, such as the war in Ukraine, directly impact ESG-related issues. The war has led to increases in energy, fuel and commodity prices, compelling Brazil to reassess its energy security and sustainability policies. Concurrently, global demand for Brazilian agricultural and mineral products has surged, pressuring the country to balance economic growth with its ESG commitments, particularly concerning environmental protection and the sustainable exploitation of resources.

The following developments related to corporate governance are expected in the upcoming year.

Expansion of the Role of Boards of Directors

In line with new regulatory requirements, boards of directors are expected to adopt a more proactive stance in overseeing ESG practices and integrating them into the company’s strategic decisions. Board members should be equipped to identify major trends in ESG investments and understand how these trends may impact the company’s ability to secure financing. With this information, they should seek to influence senior management’s decisions regarding resource allocation, promoting diversity and inclusion within corporate leadership.

Diversity in Board Composition

It has become increasingly important for boards of directors to be composed of a diverse group of individuals, encompassing various areas of expertise, experiences, sexual identity, ethnicity, age and other factors.

Creation of Specialised Committees

For some companies, the creation of a dedicated sustainability committee may be necessary to ensure that sustainability decisions are aligned with the company’s business strategy. Companies that decide to create said committees should consider having members focused on sustainability and diversity, with the authority to allocate investments and incur expenses on behalf of the company.

Changes in Executive and Board Compensation

It is anticipated that by 2025, there will be a growing adoption of ESG criteria in the variable compensation structure for board members and executives, directly linked to the achievement of sustainability and governance goals. This represents a clear method for influencing behaviour, decision-making, and accountability for the implementation of ESG-related projects, both in the short and long term.

The corporate governance requirements for listed and unlisted companies differ significantly, primarily due to the legal obligations imposed on listed entities by the Brazilian Corporations Law (Federal Law No 6,404/76), as well as regulations set forth by CVM and B3.

Listed companies are required to disclose audited financial statements, along with quarterly and annual reports, adhering to specific governance standards and protections for minority shareholders. Additionally, they must establish a board of directors responsible for overseeing executive management and safeguarding the interests of shareholders, while also complying with stringent transparency and accountability rules.

These companies are also subject to regulations and, depending on their listing segment ‒ such as the Novo Mercado ‒ must adopt additional governance practices, such as the presence of independent directors and the issuance of only voting shares.

Conversely, unlisted companies enjoy greater flexibility in their governance structures, facing fewer formal requirements regarding financial information disclosure and the composition of their governing bodies. Nonetheless, they remain subject to the Brazilian Corporations Law and other specific regulations that protect shareholder rights.

While these unlisted entities are not mandated to comply with all the requirements imposed on listed companies, there has been a growing trend towards the voluntary adoption of good governance practices each year, aimed at enhancing management, increasing transparency and attracting investors.

The roles of directors and executives are increasingly shaped by ESG requirements, which demands a comprehensive integration of these practices into corporate strategy.

In addition to establishing governance guidelines, directors and executives are implementing concrete ESG initiatives within their organisations, which include:

• the formation of sustainability committees;
• the production of environmental and social impact reports; and
• the promotion of diversity and inclusion efforts.

Such practices not only enhance the company’s reputation but can also yield significant financial benefits, including reduced operational costs and the attraction of investors committed to sustainability.

Furthermore, companies are linking ESG goals to performance evaluations for leadership, which can create incentives for senior management to commit to human rights, environmental preservation and fostering an organisational culture that embraces diversity.

However, the journey towards integrating ESG practices is not without challenges. Leaders must navigate issues such as resistance to change, lack of human, material, and financial resources, and the complexity of measuring outcomes.

Impact Businesses in Brazil

In Brazil, there is no specific legal framework for “social enterprises.” However, the concept that most closely aligns with this notion is that of “impact businesses,” initially regulated by Decree No 9,977/2019, which has recently been repealed and replaced by Decree No 11,646/2023. These enterprises aim to generate positive socio-environmental impacts alongside sustainable financial results.

These ventures are intended to facilitate the regeneration, restoration and renewal of natural resources while promoting the inclusion of communities, thereby contributing to an inclusive, equitable and regenerative economic system.

The Decree does not specify the corporate structure that impact businesses must adopt, thus they may be organised under traditional corporate law frameworks.

Third-Sector Entities

Non-profit organisations are part of Brazil’s third sector, operating in areas of public interest such as education, health, culture, environment and the promotion of human rights. The most common legal structures for these organisations include associations, foundations, non-governmental organisations and civil society organisations of public interest.

Traditionally, the obligation to uphold shareholder’s fiduciary duties is associated with the notion that investment decisions and business strategies should focus on maximising financial returns. In parallel, there is a growing trend to integrate ESG criteria into business strategies and investment decisions, recognising that such practices can result in long-term sustainability and positive impact, even if they do not yield short-term financial benefits.

This shift has raised questions about whether fiduciary duties require shareholders to prioritise short-term profitability, potentially hindering the broader adoption of the ESG agenda within corporate environments. In Brazil, investment in ESG criteria is often associated with risk mitigation and enhanced reputation, which can lead to long-term gains. In this context, the adoption of standards such as the IFRS S1 and S2 provides investors with greater transparency and assists officers and managers in their decision-making processes.

The Brazilian public sector has adopted broad commitments to promote sustainable finance through joint actions among agencies and specific regulations.

• In August 2024, the federal government launched the Ecological Transition Plan, which aims to promote ecological transformation through an integrated commitment among the executive, legislative and judicial branches. The Plan is structured around six pillars, including one dedicated to sustainable finance, and employs various financial and regulatory instruments.
• CVM approved its Sustainable Finance Policy (CVM Ordinance No 10/2023) in January 2023, aimed at strengthening the roles, consolidation, organisation and structuring of sustainable finance efforts within CVM, while also enhancing the disclosure and communication of activity results. In October of the same year, CVM launched the Sustainable Finance Action Plan for 2023-2024, which includes 17 initiatives designed to promote sustainable finance in alignment with the UN SDGs.

There are also relevant Bills of Law being discussed in the Brazilian Congress relating to sustainable finance:

• Bill of Law No 182/2024, which aims to regulate the carbon credit market;
• Bill of Law No 460/2024, which aims to create a specific fixed-income bond to raise funds for financing environmental service projects; and
• Bill of Law No 735/2022, which aims to create the Green Investment Seal for companies.

Apart from general laws and regulations concerning regular financing, issuance and emissions in the Brazilian legal framework, the most widely used guideline for raising and providing finance is the Green Bond Principles (GBP), issued by the International Capital Market Association. B3, the Brazilian stock exchange and CVM apply the definitions of green, social, sustainability and sustainability-linked bonds using the same taxonomy employed internationally.

Moreover, in 2023, the federal government issued the Brazilian Framework for Sustainable Sovereign Bonds, aimed at establishing guidelines for the issuance of green, social and/or sustainable public bonds in the international market.

Earlier, in 2021, the National Bank for Economic and Social Development (BNDES, by its acronym in Portuguese) launched the Sustainability Bond Framework, a document that allows for the issuance of green, social and sustainable bonds by BNDES.

The Brazilian Association of Financial and Capital Markets Entities (ANBIMA, by its acronym in Portuguese) has issued a “Guide for Sustainable Bond Offerings: Best Practices for Issuing and Public Offering of Fixed-Income Securities Related to Sustainable Finance”, which is also a good source for companies considering raising and providing financing.

Access to sustainable finance in Brazil has improved significantly in recent years, although it still presents some challenges.

Growing Market and Enhancement of the Regulatory Framework

There is an increasing interest in sustainable finance, driven by both domestic and international investors looking for environmentally and socially responsible investment opportunities. In parallel, regulations such as CVM Resolutions No 59 and No 193 foster transparency in ESG reporting, making it easier for investors to assess the sustainability practices of companies.

Green Bonds

Moreover, in the past years Brazil has seen a rise in the issuance of green bonds, which provide funding for projects with positive environmental impacts. The Green Financial Letter (LFV, by its acronym in Portuguese) is a type of security issued by financial institutions (such as banks and credit co-operatives) aimed at raising long-term funds. In return, it offers investors more attractive returns due to the longer duration and the lack of early redemption options. The funds raised through LFVs are specifically allocated to “green” investments, which are related to environmental or social issues.

In October 2020, BNDES issued BRL1 billion in LFVs, becoming the first institution to do so in Brazil. The proceeds from this issuance were directed towards investments in wind and solar energy, specifically in the Cutia and Bento Miguel Wind Complex, located in the state of Rio Grande do Norte, and in the Paracatu Solar Complex, in the state of Minas Gerais.

Social Bonds

In January 2022, Banco do Brasil (BB) issued social bonds amounting to BRL500 million, with the proceeds allocated to financing social projects in areas such as affordable housing and small and medium enterprises. In April 2023 and March 2024, BB issued sustainability bonds, each worth BRL750 million, aimed at promoting sustainable economic activities, both socially and environmentally, such as supporting renewable energy usage and providing credit for women-led small and medium enterprises.

One concern regarding an inclusive and just transition to ESG in Brazil include the significant participation of the agribusiness sector in the economy (24% of GDP), which is responsible for approximately 75% of Brazil’s gross greenhouse gas emissions in 2023. The energy matrix is diversified and includes various renewable sources (such as hydropower, wind, biomass and solar); however, a significant portion still relies on fossil fuels, primarily oil and natural gas.

Moreover, in the oil and gas industry, the just transition to ESG shall address the concern that a significant portion of the Brazilian population potentially might not have access to renewable energy sources. This means that not only Brazil needs to invest in reducing emissions, but also ensure that the entire population would be able to benefit from new energy sources.

Among the challenges in sustainable finance in the coming years, the following are worth highlighting.

• Risks of greenwashing and greenbleaching caused by the misleading presentation of companies as environmentally responsible, through false advertising, use of fake sustainability certifications, and insufficient disclosure of information about their environmental practices.
• Challenges for small and medium-sized businesses to report ESG-related information and to comply with requirements in sustainable financing operations.
• Resistance by less sustainable sectors, such as mining, oil and gas and agriculture and livestock, to adhere to sustainability practices. For instance, Brazil is home to the Agribusiness Parliamentary Front, a ruralist collective of congressmen and senators who advocate for the interests of agribusiness development, which may lead to legislative and regulatory initiatives that prioritise short-term gains over sustainability.

The Shift Towards Human Rights Due Diligence

In recent years, Brazil has experienced a movement to strengthen legislation on due diligence related to ESG, particularly concerning human rights violations. For instance, in 2023 Federal Decree No 11,772/2023 established an Interministerial Working Group led by the Ministry of Human Rights tasked with drafting the proposal for the National Policy on Human Rights and Business. Among the Group’s responsibilities is the formulation of measures and actions to develop business policies in alignment with national and international standards, including strengthening legislation on ESG due diligence.

Another significant development is Bill of Law No 572/2022 (“Bill No 572/22”), which is currently being discussed in the Brazilian House of Representatives. If approved, companies that are domiciled or economically active in Brazil may be required to conduct human rights due diligence. The Bill aims to establish a National Framework on Human Rights and Business in Brazil, providing guidelines for the application of national and international standards and norms to protect human rights.

To date, there is no specific legislation in Brazil requiring human rights due diligence in supply chains. However, the current text of Bill No 572/22 establishes that companies domiciled in or economically active within Brazil are responsible for human rights violations directly or indirectly caused by their activities. Liability for such violations will be joint and extend throughout the entire production chain, including Brazilian economic and financial entities that invest in or benefit from any stage of the production process.

In addition, based on the existing Brazilian legislation, companies may be held subsidiarily liable for ESG-related violations. For example, employers may be held liable in labour courts if third-party companies are involved in labour rights violations. This includes responsibility for unpaid overtime and moral damages in cases of harassment and/or discrimination.

On 22 February 2023, a joint operation by the Ministry of Labour and Employment, the Labour Prosecutor’s Office and the Federal Police rescued approximately 200 workers subject to modern slavery at wineries in the state of Rio Grande do Sul. Recent labour court decisions have indicated that both the contracted companies and the winery receiving the services are liable to compensate one of the rescued workers for moral damages.

Considering the evolving legislation, companies with operations in Brazil have been implementing human rights internal policies and procedures and requiring their suppliers to comply with them in their own operations and activities. Some companies also provide training for, and more mature companies may even finance the implementation of these guidelines by these suppliers. While this is not yet a legal requirement, the market practices suggest a growing trend where Brazilian companies will increasingly choose their business partners based on ESG criteria, driven by self-interest, by contractual obligations, and eventually by legal requirements. For instance, some Brazilian companies do business with companies located in the European Union and may be affected by the EU Corporate Sustainability Due Diligence Directive (CSDDD), and thus be required to conduct ESG due diligence when selecting suppliers.

“E” in Merges and Acquisitions

In many ways, ESG matters have long played important roles in mergers and acquisitions in Brazil, particularly concerning environmental issues. Compliance with environmental regulations and licensing, as well as a thorough analysis of any ongoing or potential environmental litigation involving target companies, have always been a part of issues analysed in pre-acquisition due diligence. These factors can create liability risks and directly impact deal pricing, which is also why they are typically addressed in robust representations and warranties clauses in the agreements formalising the deals.

The Growing Role of the “G” in Merges and Acquisitions

Matters relating to corporate governance have also played an increasingly important role in mergers and acquisitions in Brazil in the past ten to fifteen years. Due to the enaction of anti-corruption legislation and regulations that provide for successor’s liability for wrongdoings committed by an acquired entity, investors and shareholders have shifted to focusing on structuring deals with companies with robust governance structures.

The Expectations Towards the “S” Are Developing An Important Role in Merges and Acquisitions

Even though Brazil currently does not have legal mechanisms to require companies to consider concrete social aspects in merges and acquisitions, there are relevant discussions in the legislative branch to establish guidelines for corporate responsibility in relation to human rights, as mentioned at 4.1 Soft Law Becoming Hard Law.

Moreover, EU companies which are subject to the CSDDD and use acquisitions as a means of expanding their operations in Brazil shall evaluate the sustainability-related risks associated with their acquisitions. This could directly impact Brazilian companies with whom they do business.

In Brazil, the following categories of companies are required to disclose ESG-related information, consolidated in sustainability reports, integrated reports or through other means.

• Federal Law No 13.303/2016: requires public companies and mixed-capital companies to observe transparency requirements. Article 8, item XI, requires the annual disclosure of an integrated or sustainability report.
• Resolution No 139/2021 and Normative Instruction 153/2021 of the Central Bank of Brazil: regulates the annual preparation of a Report on Social, Environmental, and Climate Risks and Opportunities by financial institutions, based on the Task Force on Climate-Related Financial Disclosures (TCFD).
• Superintendence of Private Insurance (SUSEP, by its acronym in Portuguese) Ordinance No 666/2022: outlines sustainability requirements to be observed by insurance companies, open pension entities, capitalisation companies, and local reinsurers. Among the provisions of the circular, Article 15 requires companies supervised by SUSEP to annually disclose a sustainability report.
• Resolutions No 59 and 193 by CVM: in December 2021, CVM published Resolution No 59, which required publicly traded companies to indicate in their CVM reference forms data on corporate governance, human rights and the environment. In October 2023, CVM published Resolution No 193, which requires the disclosure by public companies, investment funds, and securitisation companies of a report on financial information related to sustainability, based on the international standard issued by the International Sustainability Standards Board (ISSB), starting in 2027 (for the 2026 fiscal year). This Resolution positions Brazil as the first country in the world to adopt the ISSB’s report on financial information related to sustainability.

Furthermore, Bill of Law No 412/2022 aims to regulate the carbon market in Brazil and may require companies with emissions exceeding 10,000 tons of CO2 per year to submit a report on emissions and removals of greenhouse gases. The Bill passed in the Federal Senate in October 2023 and is currently awaiting review by the House of Representatives.

According to CVM Resolution No 193, reporting must be conducted in accordance with the guidelines of the IFRS S1 “General Requirements for Disclosure of Sustainability-related Financial Information” and IFRS S2 “Climate-related Disclosures” issued by the ISSB. Specifically, the latter recommends disclosing information on:

• climate transition plans companies may have, action plans to achieve them, and their associated risks; and
• the strategies defined to achieve the proposed climate targets.

As mentioned in 5.1 Key Requirements, the adoption of ISSB standards by publicly traded companies, investment funds and securitisation companies is voluntary starting in 2025 and will become mandatory starting in 2027. The period of voluntary reporting is being used by CVM to analyse the need for adjustments in the regulations. Organisations that choose to adopt voluntary reporting are required to disclose the fiscal year in which they will begin to comply with the standards.

The main programme for the certification of sustainably sourced products and services is the Green Seal Brazil Program, established by the federal government in June 2024, through Federal Decree No 12,063/2024. The programme aims to develop a national strategy for the certification and compliance assessment of Brazilian products and services that demonstrably have a social and environmentally responsible lifecycle.

Regulation by the Ministry of Development, Industry, Commerce, and Services will establish the programme’s management and advisory committees, which will be responsible for:

• facilitating dialogue between the public and private sectors to jointly build initiatives;
• developing guidelines; and
• establishing priority products and services for certification.

The expectation is that the first standards will be published by the first half of 2025.

As mentioned above (see 5.1 Key Requirements), the main regulators monitoring the reporting of ESG-related information in Brazil are the CVM, the Central Bank of Brazil and SUSEP.

With the establishment of the Green Seal Brazil Program, new entities responsible for monitoring ESG matters will be appointed. Article 5 of Federal Decree No 12,063/2024 states that the seal will be granted by assessment bodies accredited by the National Institute of Metrology, Quality and Technology (INMETRO, by its acronym in Portuguese) to those products and services that demonstrably meet the sustainability requirements defined in Brazilian technical standards issued under the Green Seal Program.

The penalties for companies that fail to comply with ESG reporting obligations and fail to submit sustainability reports can vary depending on the applicable regulations and the sector in which the company operates.

In the case of the Central Bank of Brazil, which supervises and enforces penalties for financial institutions, the types of penalties vary based on the economic capacity of the offender and the degree of reprehensibility of the conduct. The following penalties may be applied:

• fines;
• disqualification or prohibition from exercising certain activities; and
• in very serious cases, revocation of the authorisation to operate.

Additionally, publicly traded companies, investment funds and securitisation companies may face administrative fines imposed by CVM for non-compliance with Resolution No 59 and, starting in 2027, for non-compliance with Resolution No 193. Article 11 of Law No 6,385/1976, which regulates the capital markets in Brazil, specifies the penalties applicable by CVM, which can range from fines and warnings to the suspension of trading of the shares of the supervised companies, depending on the severity of the non-compliance.

In the coming years, Brazilian companies are expected to make significant progress regarding ESG reporting obligations, driven by local regulations and demands from other jurisdictions with which Brazilian companies maintain trade relationships. Some of these include the following.

• The aforementioned regulations indicate that Brazilian companies must adopt international ESG reporting standards, such as those from the ISSB, the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the recommendations from the TCFD. As a result of adopting these standards, the trend is toward greater transparency in companies’ ESG practices, as they seek to meet stakeholder expectations.
• The integration of ESG topics into business strategies, a movement that is already present in companies that go beyond mere regulatory compliance.
• Training and qualification of professionals, particularly within compliance and sustainability teams, as well as investment in third-party specialists for ESG information reporting.

The following challenges should be highlighted:

• the need for investment to implement sustainable practices;
• the complexity of data collection and standardisation;
• the need to revise budgets to implement efficient ESG information collection systems;
• increasing regulatory pressure; and
• the risks of greenwashing arising from the growing regulatory pressure.

In Brazil, there are several mechanisms available to private parties and enforcement authorities to initiate ESG-related cases against companies, which vary depending on the nature of the case and the type of offence. Below are a few common examples.

• Complaints to CVM: when irregularities occur involving publicly traded companies that may impact investors or the financial market, particularly regarding ESG information disclosure, as stipulated in CVM Resolution No 193.
• Environmental criminal actions: this is the sole basis for corporate criminal liability in Brazil. The Public Prosecutor’s Office may pursue cases under the Environmental Crimes Law. Entities convicted of environmental crimes are typically subject to severe fines.
• Popular actions: any citizen has the right to file a lawsuit to challenge administrative acts that infringe upon public assets, environmental integrity or administrative morality.
• Public civil actions: these civil actions fall under the jurisdiction of the Public Prosecutor’s Office and aim to protect the environment, consumer rights and other collective interests.
• Complaints to the National Consumer Protection Agency and to the National Council for Advertising Self-Regulation: these are appropriate for addressing advertising practices that violate consumer rights or involve misleading claims, such as greenwashing.
• Labour-related lawsuits: employees may file lawsuits in labour courts against employers in case of violation of labour rights and harassment. Depending on the severity of the offence, they may also give rise to criminal liability.

In Brazil, NGOs and activists play an important role in the ESG landscape, particularly regarding environmental issues and social justice. They often lead oversight efforts, report violations and advocate for fairer and more sustainable public policies.

Environment and Climate Activism

Organisations such as WWF, the Socioenvironmental Institute (ISA, by its acronym in Portuguese), and Greenpeace are actively engaged in campaigns against deforestation, climate change and biodiversity conservation. These groups are well-known for their advocacy, monitoring and awareness-raising initiatives.

Additionally, local and regional NGOs are essential in promoting climate justice, including the Mapinguari Institute, Rede Jandyras, Engajamundo and Resama.

Indigenous, Quilombola and Other Vulnerable Communities

Social movements such as Casa Fluminense, COIAB (Coordination of Indigenous Organizations of the Brazilian Amazon, by its acronym in Portuguese), and CONAQ (National Coordination of Articulation of Quilombola Rural Black Communities, by its acronym in Portuguese) also play a vital role. These entities advocate for the rights of vulnerable populations, such as Indigenous and Quilombola communities (“Quilombolas” is the Portuguese term for members of communities in Brazil that are descendants of escaped enslaved people), and are key to advancing ESG agendas.

Moreover, Brazil is home to internationally recognised activists such as Alice Pataxó, Alessandra Korap and Samela Sateré, all of whom champion Indigenous and environmental causes. They serve as important voices in the fight against environmental and social violations perpetrated by large corporations.

Enforcement Actions Against Irregularities in the Carbon Credit Market

In 2024, the Brazilian Federal Police launched “Operation Greenwashing” to investigate the illegal sale of carbon credits of illegal projects in the state of Amazonas. This operation dismantled a criminal organisation suspected of selling approximately BRL180 million in carbon credits from illegally occupied areas.

Moreover, in 2023, the State of Pará’s Public Defender’s Office filed civil lawsuits against a group of companies from Brazil, Canada, USA and the UK that allegedly irregularly sold carbon credits to large Brazilian and foreign companies. The carbon credits were certified by the largest certifier in the voluntary carbon credit market and were validated by third-party auditors. These cases represent examples of the increasing involvement of authorities in identifying and combating greenwashing practices, especially in the carbon credit market, given Brazil’s potential in this market.

Increase in Scrutiny by Advertising Regulators

Another example of regulators taking action against misleading ESG information involved an advertising campaign. A well-known matchstick company claimed that its products were made from “100% reforested” wood and included said information in the products’ packaging. However, there was no official certification or any other available evidence to substantiate the advertisement. After receiving a complaint against the campaign, the National Council for Advertising Self-Regulation (CONAR, by its acronym in Portuguese) required the company to remove this information from its packaging, reinforcing the increased scrutiny on sustainability campaigns and reporting in general.

Investors Disbelief and Regulation on Sustainability Reports

Moreover, a survey conducted by PwC in 2024 found that 98% of investors believe there is greenwashing in the sustainability reports published by companies. This underscores the growing vigilance among investors, who are carefully assessing the disclosed ESG information. CVM’s new regulations demanding the adoption of international standards in sustainability reports are a first step towards combating greenwashing in these reports.

These cases indicate that while Brazil is still maturing in its approach to hold companies liable for greenwashing, there is a rising demand for greater transparency in ESG practices from both investors and regulatory bodies.

Although Brazil has adopted significant measures to include ESG matters in governmental agendas, it still has a long path towards incorporating ESG-related principles in business strategies and in the public agenda. In this context, it is likely that the number of ESG-related lawsuits will increase as international pressure and investor demands grow. With the rising global awareness of environmental, social and governance issues, Brazilian companies and regulatory bodies will face stricter requirements to implement transparent and sustainable practices.

Examples of this shift include:

• the Central Bank’s new sustainability agenda, which prioritises the management of environmental and climate risks;
• the 2023 CVM Resolution, which requires the disclosure by public companies, investment funds and securitisation companies of a report on financial information related to sustainability, based on the international standard issued by the ISSB, starting in 2027 (for the 2026 fiscal year); and
• the classification of “green actions” by B3, which highlights companies’ alignment with the green economy.

These initiatives indicate a movement towards greater transparency and corporate accountability in Brazil.