On September 15, 2021, the Central Bank of Brazil (BCB) released its first “Report on Social, Environmental and Climate-related Risks and Opportunities”. Based on the recommendations by the World Economic Forum (WEF), the Task Force on Climate-related Financial Disclosure (TCFD), and the Network for Greening the Financial System (NGFS), the publication highlights the potential impacts of social, environmental, and climate-related issues on Brazil’s economy and financial stability, and details the initiatives aimed at assessing, disclosing and managing ESG risks and opportunities within the BCB structure and in the financial system.

Additionally, following up on public consultations No. 82/2021, No. 85/2021 and No. 86/2021, the BCB and the National Monetary Council (CMN) released a package of rules concerning the following:

  • Management of social, environmental, and climate-related risks (besides the traditional financial and market risks) by institutions of the National Financial System and disclosure of information on these risks. For these purposes, clear definitions of each of such risks were introduced by the new regulations, which no longer carry the generic concept of “socioenvironmental risk”;
  • Formulation of the “Social, Environmental and Climate Responsibility Policy” (PRSAC) and the “Report on Social, Environmental and Climate-related Risks and Opportunities” (GRSAC Report).

The PRSAC is a set of principles and guidelines relating to social, environmental and climate-related factors to be observed by a given institution in its business, activities, and in its relationship with stakeholders. The GRSAC Report is a standardized report to be published on a yearly basis, taking December 31 as the reference date. The report must contain the following information regarding social, environmental and climate-related risks: (i) governance of risk management (including a description of the duties and responsibilities across the different levels of governance); (ii) strategies adopted for risk and capital management; and (iii) risk management processes; and

  • Strengthening of the enforcement of existing legal and regulatory restrictions applicable to rural credit concerning social, environmental and climate-related issues.

The new rules will enter into force at different times between October 1, 2021 and December 1, 2022.