Introduction

ESG (environmental, social, and governance) has been at the forefront of governmental and regulatory discussions in several countries, both developed and developing, as well as in bilateral and multilateral agreements aimed at standardising practices and actions along the lines originally proposed by the publication “Who Cares Wins”, produced in 2004 by the UN Global Compact, in partnership with the World Bank.

“E” for Environmental

With regard to the “E” (environmental) pillar, in November 2025 Brazil hosted the UN Climate Change Conference, or the 30th Conference of the Parties, known as the “Amazon COP”, where topics covered included the transition in the energy, industrial and transport sectors; the sustainable management of forests, oceans and biodiversity; the transformation of agriculture and food systems; the building of resilience in cities, infrastructure, and water; and the promotion of human and social development, together with enablers such as financing and technology.

In addition to overseeing and preserving the world’s largest tropical rainforest, the Amazon, Brazil has stringent and up-to-date environmental rules (eg, Law No 12,651/2012, the “Brazilian Forest Code”) that ensure the preservation of native and permanent protection areas within rural properties. These rules, combined with cutting-edge technology used in agricultural production and an energy matrix focused on hydroelectric plants, solar power and biomass, result in one of the world’s most sustainable production systems.

Brazil is also a pioneer in initiatives to reduce carbon emissions, having enacted Law No 14,119 in 2021 on the National Policy on Payment for Environmental Services (Política Nacional de Pagamento por Serviços Ambientais – PNPSA), which regulates voluntary financial mechanisms to remunerate rural producers, traditional communities or indigenous peoples for conserving or restoring ecosystems – in other words, those who protect springs, forests and biodiversity receive money or technical support for generating essential benefits for society.

In the same context, in 2024 the Future Fuel Law (Law No 14,993) was enacted, boosting decarbonisation by regulating and encouraging sustainable alternatives designed to replace petroleum derivatives and reduce gas emissions, namely: (i) ethanol, a traditional fuel already widely used for motor vehicles in Brazil; (ii) green diesel (HVO), produced from vegetable oils and animal fats; (iii) biomethane, a 100% renewable gas purified from biogas obtained through the decomposition of organic waste; (iv) sustainable aviation fuel (SAF), produced from biomass and oils; and (v) green hydrogen, produced using clean energy (solar or wind) to separate hydrogen from water.

More recently, in 2024, discussions began in the National Congress (Bill No 2,780) regarding the National Policy on Critical and Strategic Minerals (Política Nacional de Minerais Críticos e Estratégicos – PNMCE), which establishes government guidelines to ensure national sovereignty, industrial supply, and progress in the energy transition, prioritising local value addition, discouraging the export of raw minerals, and stimulating domestic processing.

“S” for Social

With regard to the “S” (social) pillar, Brazil has one of the most comprehensive public systems of healthcare, social security and social assistance. This is financed by the federal government, as well as by companies through social contributions levied on revenue, payroll and profits, and by citizens themselves through payroll withholdings and voluntary payments, funding the Unified Health System (Sistema Único de Saúde – SUS), social security, and welfare benefits such as unemployment insurance and free subsidies for food security (Bolsa Família), buying gas cylinders (Vale Gás), and awarding scholarships (Pé-de-Meia), among others.

Additionally, to reduce the impact of income tax on the population, as of 2026 (Law No 15,270), the federal government exempted monthly income up to BRL5,000; reduced taxation on income up to BRL7,350; while maintaining the progressive income tax system for citizens earning above that threshold, with rates that reach 27.5% of gross income.

Regarding labour protection, Brazil has had legislation in force since 1943 (Consolidation of Labour Laws – CLT, Decree-Law No 5,452), and this remains highly restrictive. Although it underwent a significant reform in 2017 aimed at reducing the backlog of lawsuits and employers’ costs, it still represents a major challenge to unlocking corporate productivity without setting aside employee protection and hard-won benefits.

In parallel, in May 2026 an update to the Brazilian Ministry of Labour and Employment’s regulation (Regulatory Standard – NR No 1) came into force. It serves as the cornerstone of Brazil’s Occupational Health and Safety system (Saúde e Segurança do Trabalho – SST), requiring companies to implement Occupational Risk Management (Gestão de Riscos Ocupacionais – GRO) and document a Risk Management Program (Programa de Gestão de Risco – PGR), which now includes the obligation to prevent mental health risks such as stress, harassment and burnout.

Lastly, a reduction in working hours is under discussion in the National Congress. In Brazil, under the Federal Constitution of 1988, the working week is 44 hours, which is why it is commonly referred to as the “6x1 schedule” (six working days and one weekly day of rest). The proposals provide for either a 5x2 schedule or a reduction to 40 hours per week, initially without the possibility of salary reduction by employers, which will likely lead to lay-offs in industry, retail and services.

And What About “G” for Governance?

Notwithstanding the great relevance of the “E” and the “S” in public and corporate policies, unfortunately in the past years there has been much less effort and investment on the “G”, leading to cash shortage, accounting frauds and corruption cases which drain resources for investing in innovation and technology, and in new programmes and funds for promoting environmental and social development.

There are several international frameworks that guide how organisations are directed, controlled and held accountable around the world, but based on the OECD Principles (2023), corporate governance guidelines are summarised as:

• corporate governance framework, rights and equitable treatment of shareholders;
• disclosure and transparency;
• institutional investors, stock markets, and other intermediaries;
• compliance and the responsibilities of the board; and
• sustainability and resilience.

Corporate governance framework, rights and equitable treatment of shareholders

Brazil has an extensive business regulation in the field of corporate governance. The Brazilian Corporations Law (Law No 6,404) dates back to 1976 and remains in force to this day, having undergone numerous amendments, especially in 1997 (Law No 9,457), 2001 (Law No 10,303), 2007 (Law No 11,638), 2009 (Law No 11,941) and, more recently, 2021 (Law No 14,195), with a view to modernising the Brazilian capital markets, promoting the protection of minority shareholders, and incorporating international accounting standards.

Disclosure and transparency

Specifically with regard to accounting standards, Brazil began, on a phased basis from 2008 onwards, to adopt the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), creating the Brazilian Accounting Pronouncements Committee – an autonomous body composed of professional associations and Brazilian financial-market entities. This is responsible for studying, preparing and issuing accounting standards in Brazil, later endorsed by public agencies and regulators with binding authority, including the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) and the Brazilian Central Bank (Banco Central – Bacen).

Institutional investors, stock markets, and other intermediaries

The CVM’s own regulatory framework also dates back to 1976 (Law No 6,385) and has been updated so as to provide clear concepts and definitions concerning the issuance, custody and trading of shares, debentures, subscription warrants, coupons, receipts, securities deposit certificates, bonds, commercial papers, investment funds quotas, futures, options and other derivatives, including the carbon-credit market.

This places the Brazilian stock, commodities and futures exchange among the most reliable, liquid and sought-after by domestic and foreign investors. This is in addition to the extensive regulation and protection afforded by Bacen to the latter, who benefit from a differentiated regime for promoting direct investment, whether through the incorporation of a new legal entity or the capital increase of an existing one, or through the financial and capital markets, with tax benefits related to the Tax on Financial Transactions (Imposto sobre Operações Financeiras – IOF) in foreign-exchange operations, and income tax (Imposto de Renda Retido na Fonte – IRRF) on gains earned in certain exchange and over-the-counter market transactions.

Compliance and the responsibilities of the board

However, even with the evolution of compliance standards and rules, corporate governance in Brazil still has significant room for improvement. Evidence lies in the negative repercussions of accounting and financial frauds reported in recent years, including cases that attracted international attention.

The Americanas Case

In January 2023, Americanas SA – a traditional Brazilian retail group founded in 1929 and currently controlled by the founders of 3G Capital – disclosed to the market, by means of a material fact notice, the identification of inconsistencies in the accounting entries of its balance sheet in the amount of BRL20 billion. Days later, the company filed for judicial reorganisation (Brazilian Chapter 11), in which it reported debts totalling BRL43 billion, owed to approximately 16,300 creditors.

In June 2023, the company reported that the improper entries and fraud uncovered in its financial statements amounted, on a preliminary and unaudited basis, to more than BRL40 billion, indicating the involvement of its former CEO, as well as three former directors and three former executives.

The shortfall led B³, the São Paulo stock exchange, to auction Americanas’ common shares, and the company’s stock was placed under review by major financial institutions. On the day following the announcement of the shortfall, Americanas lost BRL8.37 billion in market value, and its shares fell by nearly 80%, harming its investors.

The company is currently still undergoing judicial reorganisation, while the CVM has created a task force to identify, investigate and examine potential irregularities. Three administrative inquiries, three sanctioning administrative proceedings (allegations of violations punishable by fines and disqualification, subject to defence and decision by the board, which may result in convictions), and one administrative proceeding (to investigate the conduct of the independent auditor) are currently under way.

The Banco Master Case

The most recent case of fraud against the national financial system, perhaps the largest in history, involved Banco Master SA, a financial institution investigated by the Brazilian federal police on suspicion of having caused potential losses of BRL40 billion, with its controlling shareholder, Daniel Vorcaro, as the principal target – he is currently in pre-trial detention.

Beyond the involvement of politicians and high-ranking public officials – including, allegedly, individuals from the supervisory authority (Bacen), which is still under investigation – the complex corporate structure created to conceal assets and the origin of funds is striking, as are the indications of the fabrication of credit portfolios lacking financial backing in order to inflate assets and, consequently, the collateral supporting the issuance of private securities (Certificados de Depósitos Bancários – CDB) and the raising of funds from investors in general.

In this case, the regulator appears to have been effective in blocking an acquisition transaction involving a public bank, Banco de Brasília (BRB), which would have concealed the insufficiency of assets needed to support the institution’s liquidity as required by Bacen regulations. Bacen subsequently formalised the extrajudicial liquidation of financial institutions within the conglomerate, such as the bank itself, Letsbank and Will Bank.

The case is still ongoing, but thus far the Credit Guarantee Fund (Fundo Garantidor de Créditos – FGC), maintained by mandatory contributions from associated financial institutions for the purpose of protecting the financial system, preventing crises and safeguarding clients, while guaranteeing payment of up to BRL250,000 per natural person or legal entity in the event of intervention or liquidation by Bacen, has spent approximately BRL49.5 billion to reimburse Master’s investors and clients.

Sustainability and resilience

Counting on one of the highest basic interest rates in the world (14.5% per annum), Brazil’s private sector has been suffering from reduced investment and high default rates. Since 2022, the number of companies undergoing judicial reorganisation (Chapter 11) has nearly tripled, reaching 2,466 in 2025, according to Serasa Experian. In addition to the aforementioned Americanas, major companies such as Oi, Light, and Odebrecht remain under judicial reorganisation, while other large groups such as Raízen, Pão de Açúcar, Casas Bahia, and Andrade Gutierrez have resorted to out-of-court restructuring plans.

Negative as this may sound, moments of crisis and scarcity create business opportunities and demand that greater attention is paid to controlling tools, such as management information systems for monitoring performance indicators (KPI) and cash flow, risk management tools, such as the use of hedge instruments to protect against fluctuations in exchange rates, prices, and interest rates, and corporate governance mechanisms that strengthen the role of the board of directors, the fiscal council, and internal audit, risk, and compliance committees.

Those management and corporate governance systems are mandatory for publicly held joint stock companies listed on the B³, and are strongly recommended for private companies, to provide business sustainability and resilience, although Brazil is not sustained by large companies alone.

Specific issues of corporate governance in Brazil

In agribusiness, a driving force of the Brazilian economy, it is still very common for farming activities to be conducted by the individual producer rather than through the creation of a legal entity, which entails a series of management and governance problems.

Individuals acting as companies

In Brazil, since 1996 (Law No 9,393), individuals have been allowed to calculate their income tax – generally due annually – in a differentiated manner for rural activity, allowing not only the deduction of production expenses and charges, but also of investments made (eg, improvements and the acquisition of machinery and equipment), while also limiting the application of the progressive tax table (with rates of up to 27.5%) to 20% of the gross revenue earned, thus creating a tax incentive against the formation of legal entities.

Moreover, from 2020 onwards (Law No 14,112), individual rural producers have also come to enjoy the possibility of seeking the benefits of judicial reorganisation on the same terms as companies (Chapter 11), which had already been required since 2005 (Law No 11,101) to prove the regular exercise of their activities for more than two years. Finally, public financing for producers under the Multiannual Crop Plan tends to be cheaper (lower interest rates) and less bureaucratic for individuals, resulting in reverse incentives against the creation of legal entities in Brazil.

Companies acting like individuals

In the opposite direction, families and family business groups have sought so-called asset-holding companies as an alternative for protecting assets against claims by commercial creditors and the tax authorities. In fact, the Brazilian Civil Code (Law No 10,406/2002) adopts the enterprise theory, under which legal entities constitute a segregation of assets for business activity, attracting rights and obligations separate from those of the shareholders, especially due to the application of the accounting entity principle.

However, Brazilian procedural rules (Law No 13,105/2015) provide modern debt-recovery tools, and in cases of proven abuse of legal personality, characterised by misuse of purpose (harming creditors and practising unlawful acts of any kind) or by commingling of assets (repeated performance by the company of the obligations of the shareholder or manager, or vice versa, or by transfers of assets or liabilities without effective consideration), the judge may, at the request of a party or the Public Prosecutor’s Office, disregard the legal entity so that the effects of certain obligations may be extended to the private assets of managers or shareholders who have directly or indirectly benefited.

In other words, a legal entity offers “standard” asset protection in Brazil, according to the corporate law in force, but much like the factory armour of a motor vehicle, it is only useful if employed properly, with transparency, fairness, compliance and accountability – a bulletproof vehicle is of no use if the driver travels the streets with the windows wide open.

Taxes, always an issue

Tax directly affects corporate governance of Brazilian companies: a large proportion of corporate restructurings and M&A transactions are driven – or at the very least, impacted – by high corporate taxation, namely 34% on capital gains by adding corporate income tax (Imposto de Renda da Pessoa Jurídica – IRPJ) and the Social Contribution on Net Profit (Contribuição Social sobre o Lucro Líquido – CSLL).

At the end of 2025, Brazil also adopted (Law No 15,270) an additional 10% income tax on the payment of dividends to individuals (above BRL50,000 per month) and on high incomes (above BRL600,000 per year), which triggered several corporate and estate-planning strategies aimed at avoiding an increase in the tax burden on share capital invested by shareholders in financing companies.

On the other hand, Brazil also faces high indirect taxation on consumption, which recently underwent reform (Complementary Laws No 214/2025 and No 227/2026), inspired by the value-added tax (VAT) models around the world. The intention is to replace:

• two social contributions on gross income (PIS/Pasep and COFINS);
• the federal Tax on Industrialised Goods (IPI);
• the state Tax on Goods and Services (ICMS); and
• the municipal Tax on Services (ISS),

with three new taxes:

• a Contribution on Goods and Services (Contribuição sobre Bens e Serviços – CBS);
• a Tax on Goods and Services (Imposto sobre Bens e Serviços – IBS); and
• a brand-new “excise tax”.

The aim of this tax reform is the simplification and neutrality of Brazilian taxation on consumption, but it has generated considerable uncertainty for companies due to the transition period (until 2033), during which both systems will co-exist, and the lack of clarity regarding the rates that will apply once fully implemented, considering that Brazil has 5,569 cities spread over 26 states and the Federal District – each with its own applicable tax rates.

Final Remarks

Brazil remains one of the world’s largest economies, with abundant water and natural resources, a clean energy matrix, and innovative technology in relevant industries and sectors. If the necessary structural reforms are carried out by the legislative branch; if the fiscal policy and control of public spending are improved by the executive branch; and if legal certainty is ensured to citizens and investors, both domestic and foreign, by the judiciary; Brazil has the potential to attract more public funding and private investments and to become the most sustainable economy on the planet.