The global quest for sustainable and socially responsible business practices, with a focus on ESG, has reached a significant achievement in Brazil with the introduction of CVM Resolution 193 by the Securities Commission on October 20, 2023.
This resolution, effective as of November 1st, positions the country at the center of talks concerning sustainability-related financial reports.
Consolidating the adoption of the international standard issued by the International Sustainability Standards Council (ISSB) is an important milestone.
This post will provide a thorough explanation of the significance of this change, its potential beneficiaries, and how law firms and legal departments can strategically adapt to the new situation.
What does CVM Resolution 193 entail?
CVM Resolution 193 mandates the creation and distribution of a report containing financial information related to sustainability. This makes Brazil the pioneer in adopting ISSB standards for disclosing sustainability information.
ISSB standards are created by a global board of sustainability experts to offer a uniform and thorough basis for companies worldwide to share sustainability information.
Brazil playing a leading role in promoting global sustainability standards.
By embracing the innovative report, the nation is at the forefront of promoting global sustainability standards. The government is spearheading the integration of sustainable practices across different sectors of the economy with the Ecological Transformation Plan, fostering the engagement of businesses.
The Resolution adoption shows dedication to sustainable finance development and enhancing transparency and comparability of companies’ disclosed information.
This can help promote ISSB standards in other nations, which would be a significant move in globalizing sustainability standards.
3 benefits of CVM Resolution 193 for Brazil
Next, understand some of the particular advantages that CVM Resolution 193 can offer to Brazil.
Improved visibility and consistency of sustainability data.
Companies must consistently and comparably disclose information about their environmental, social, and governance impacts as mandated by CVM Resolution 193.
Investors and other stakeholders can benefit from the practice, which can also help companies develop sustainable practices.
2. Encouraging sustainable investments
The implementation of global guidelines for sharing sustainability data can help Brazil attract investments that promote sustainability, as investors are more interested in companies with strong ESG initiatives.
Promotion of sustainable growth and development
Resolution 193 from the CVM can support the sustainable growth of the Brazilian stock market by implementing global standards for sharing sustainability data, which can enhance corporate governance and mitigate ESG risks.
The Plan for Ecological Transformation by the Federal Government
The Ecological Transformation Plan, introduced by the national government in 2023, consists of initiatives and governmental measures designed to facilitate Brazil’s shift to a low-carbon economy.
The initiative seeks to decrease greenhouse gas emissions, enhance environmental quality, and support sustainable growth.
The plan is organized into six different thematic areas.
- Bioeconomics encourages the growth of an economy centered on renewable resources like biomass, sustainable agriculture, and biotechnology.
- Renewable energies speed up the shift towards a renewable energy-based matrix, including solar, wind, and hydro power.
- Sustainable transportation encourages the advancement of cost-effective and efficient public transportation while also decreasing reliance on personal motor vehicles.
- Seeks to minimize solid waste through reduction, reuse, recycling, and advancements in waste treatment technologies.
- Protecting and restoring Brazilian biodiversity, such as forests, oceans, and urban areas, is essential for conservation and recovery efforts.
- Improving environmental legislation and monitoring enhances environmental governance in Brazil.
ESG Reports’ criteria
ISSB guidelines mandate companies to consistently and comparably disclose details regarding their environmental, social, and governance effects. This information should be included in an integrated report containing specific elements.
- Summary: Summary of the organization’s sustainability plan, encompassing its objectives and targets.
- Analysis of the risks and opportunities related to ESG that the company encounters.
- Evaluation of a company’s performance with regards to its ESG objectives and targets.
- Description of the company’s governance structure in relation to ESG matters.
ISSB guidelines mandate that companies should provide details about their ESG effects in a measurable way, using financial, non-financial metrics, or a blend of both.
Who is eligible to adopt the Sustainability-related Financial Information Report?
CVM Resolution 193 is relevant for publicly traded companies on B3 and those meeting specific size and complexity standards.
Companies are classified as large based on their market value and the number of shares in circulation.
- Market worth of at least R $ 25 billion.
- At least 250 million shares in circulation.
- Net revenue of a minimum of R$ 5 billion.
Companies are deemed complex if they satisfy any of the specified criteria related to activity and its effects on the environment or society.
- Activity that has a notable influence on the environment or society;
- Activity with substantial exposure to ESG risks;
- Government agencies regulate ESG-focused activities.
Companies that are publicly traded are required to start sharing sustainability information based on ISSB standards starting in 2025, following a phased implementation plan outlined in the standard.
Companies of any size and industry are encouraged to adopt these practices and align with the expanding ESG movement, not just large corporations.
Law firms and legal departments have a chance to take a key role in guiding and implementing the changes through the delivery of this Report.
The function of legal within the ESG strategy
The legal world is crucial in driving the shift towards ESG practices. Law firms and legal departments are tasked with ensuring the proper understanding and application of new guidelines, with distinct roles to fulfill in this regard.
Law Firms
Law firms have a distinct chance to provide specialized services.
Interpreting and carrying out CVM Resolution 193.
Law firms can provide specialized services in interpreting legislation concerning ESG practices, like CVM Resolution 193 in Brazil. Compliance requires a deep comprehension of standards and their real-world implementation.
Reporting guidance
Lawyers can help businesses create ESG reports that meet legal requirements, including identifying and managing legal risks related to disclosures.
Advice on corporate governance
They offer advice on organizing corporate governance practices in line with ESG principles to ensure companies adhere to ethical regulations and standards.
Compliance with laws and regulations
Ensure that the company’s operations align with existing ESG regulations, offering legal advice to prevent legal action and penalties.
Promotion of lasting legal rewards
They are looking for legal and regulatory rewards to encourage sustainable practices and assist companies in implementing measures that align business objectives with ESG goals.
Legal departments
Legal departments within organizations are strategically involved in incorporating ESG practices into daily activities.
Reviewing a contract
Internal legal teams are tasked with examining contracts through the lens of ESG factors, which may involve incorporating clauses pertaining to environmental, social, and governance matters to ensure alignment with company principles.
Internal policy compliance
One more duty is to guarantee that the internal policies of the company align with ESG standards. This task includes regularly reviewing and revising policies to adhere to top practices and prevent legal risks.
High-level guidance
To offer legal advice to senior management regarding the legal consequences of strategic choices linked to ESG practices is another responsibility. This involves counseling on how to make substantial operational adjustments to adhere to ESG criteria.
Managing legal risks
Identify and address the legal risks linked to ESG activities to ensure the company can effectively handle potential legal issues concerning environmental, social, and governance matters.
Training and instruction
Employee training is offered on legal matters concerning ESG practices to ensure all staff comprehends their duties and legal consequences.
Monitoring for compliance
Establish monitoring systems to guarantee the company’s ongoing adherence to ESG criteria, and carry out internal audits as required.
Guidance on reporting and disclosure
They oversee and guarantee adherence to laws when creating ESG reports, making sure that disclosures follow legal and regulatory standards.
Evaluation of suppliers and associates
They engage in evaluating suppliers and business partners for ESG compliance to ensure that the supply chain adheres to ethical and legal requirements.
The connection between adherence and ESG.
Compliance with environmental, social, and governance (ESG) standards is essential for companies, as it represents a crucial intersection of ethics and legality.
Law firms are responsible for ensuring that companies follow both regulatory requirements and integrate best practices into their organizational culture.
The connection between adherence and ESG within legal departments is comprehensive, encompassing legal conformity and the advancement of an ethical and sustainable corporate culture.
This strong partnership is essential for companies to comply with legal, ethical, and sustainability requirements.
CVM Resolution 193 establishes Brazil as a pioneer in implementing sustainability-related financial information reports.
This achievement presents important chances for law firms and legal departments to distinguish themselves as key allies in the ESG initiatives of Brazilian businesses.
The legal domain in Brazil is crucial for creating a sustainable business future by recognizing and foreseeing legal and regulatory requirements.
Don’t miss out on reading our post about ESG if you want to learn more about it.