Brazil: ESG under discussion in the Brazilian Congress

October 2022 – Brazil – Rossetti Advogados

 In recent years, ESG (Environmental, Social and Governance) issues have gained more and more strength in the business world. In fact, consumers and investors began to prioritize, and even only consider, in their consumption and investment patterns, companies committed to environmental and social sustainability practices.

However, what was once a subject of market self-regulation now tends to become the agenda of government regulators.

The Brazilian Congress is currently analyzing two bills that institute certifications, i.e., “ESG credentials”, to be granted by the government to companies that adopt ESG practices. They are Bill 4363/2021, submitted by Senator Mecias de Jesus (Republicanos-RR), and Bill 735/2022, submitted by Deputy Carlos Henrique Gaguim (União Brasil-TO).

The contents of both bills are similar, and they basically create certain benefits for companies that follow ESG practices, such as: (i) priority in bidding processes, in which ESG credentials would be used as tiebreaker; (ii) permission to display the ESG credentials in products and advertisements, (iii) priority in the access to credit and better financing conditions, at reduced interest rates, in public and private financial institutions; (iv) priority processing.

In addition, the bills set forth rules with respect to: (i) good practices with employees, customers, and suppliers; (ii) programs to promote diversity of the workforce and in the Board of Directors, in addition to qualification of employees and data security; (iii) investment in social responsibility programs; (iv) adequate use of natural resources and obtainment of raw material by means of regeneration practices; and (v) having a consistent methodology to choose investments.

There is an issue that must be improved, which consists of defining the government body responsible for inspecting compliance with these practices, as well as the role of the Securities Commission (CVM) with respect to the analysis of investment portfolios of the companies and funds.

The bills follow a certification trend already adopted in other countries, especially in the United States and European Union.  G1  contexto → Context

However, it is important to remind that even though the adoption of ESG policies that directly impact a sustainable interaction between business and society is commendable, the implementation thereof requires an appropriate study on the economic impact resulting from the regulation, subject to the risk of preventing new business due to the excessive costs these regulations would require, dooming businesses, especially small- and medium-sized businesses, and the generation of jobs and income in a world that became even poorer in the post-pandemic context.

Implementation of these actions requires balanced actions and an in-depth discussion. This subject will be further discussed and it will be necessary to monitor the changes.

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This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.