Brazil’s B3 stock exchange publishes new issuer regulations with ESG requirements

New provisions reflect recent domestic and international regulatory action regarding environmental, social and corporate governance issues

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Published on July 25, 2023

On July 20, 2023, the B3 stock exchange released a new version of its Issuer Regulations, which will take effect as of August 19, 2023. Among the new provisions, Annex B – ESG Measures (ESG Annex) introduces ESG-related requirements applicable to B3-listed companies. However, there are exceptions for companies registered as Category B publicly-held companies with the Brazilian Securities and Exchange Commission (CVM); small companies (as defined in Article 294-B of Law No. 6,404/1976); beneficiaries of financial resources linked to tax incentives (as per the terms of CVM Resolution No. 10/2020); and sponsored Brazilian Depository Receipt (BDR) issuers.

In general terms, the ESG Annex introduces three new measures that the companies in question must comply with. In line with the so-called ‘practice or explain’ model, they must show evidence of having adopted (or provide justification for not adopting – totally or partially) each measure in their reference forms.

A summary of the new measures (and their respective deadlines) contained in the ESG Annex is provided below:

ESG Measure	Deadline for adopting measures (or justifying non-adoption)	Section of reference form
ESG Measure 1: elect the following people to the board of directors (or, at a minimum, the company’s statutory officers): One woman; and One member of an under-represented community (detailed below this table).	By the deadline for obligatory annual updates to the reference form: Unlisted companies must meet at least one of the two criteria in the year immediately following listing, and meet both criteria as of the second year after listing. Listed companies must meet at least one of the two criteria from 2025 and both criteria from 2026. SPACs: the deadline is counted from the date of the business combination with the target company.	Section 7.1, items D and E
ESG Measure 2: Establish ESG requirements for appointing board members and statutory officers in the company’s bylaws or appointment policy. At a minimum, these requirements should consider: How each member’s experiences can complement the board; and Diversity in terms of gender, sexual orientation, color, race, age group and the inclusion of people with disabilities.	By the deadline for obligatory annual updates to the reference form: Unlisted companies must establish these requirements as of the year following their listing. Listed companies must establish these requirements as of 2025. SPACs: the deadline is counted from the date of the business combination with the target company.	Section 7.1, item A
ESG Measure 3: Establish performance indicators linked to ESG issues or objectives in the remuneration policies of company managers (when they are subject to variable remuneration).	By the deadline for obligatory annual updates to the reference form: Unlisted companies must establish these requirements as of the year following their listing. Listed companies must establish these requirements as of 2025. SPACs: the deadline is counted from the date of the business combination with the target company.	Section 8.1, item C.i.

Board of director and statutory officer composition

The requirements in ESG Measure 1 concerning board and statutory officer composition are not considered met if the applicable attributes are concentrated in only one person. As such, companies must ensure that at least two board members or statutory officers have such attributes – one being a woman and the other a member of an under-represented community.

Regarding ESG Measure 1, the individuals in question must self-declare their association with (at least) one of the two categories to validate that the company has met this objective.

‘Woman’ – any person who identifies with the female gender, irrespective of the sex assigned at birth.
‘Member of an under-represented community’ – any person who is ‘black’ (preta), ‘brown’ (parda) or ‘indigenous’ according to the definition of the Brazilian Institute of Geography and Statistics (IGBE); a member of the LGBTQIA+ community; or a person with a disability (as per the terms of Law No. 13,146/2015) – including “people with a long-term physical, mental, intellectual or sensory impairment who may face barriers that obstruct their full and effective participation in society on an equal basis with others“.

Other points

B3’s new regulations provide that if changes at a listed company unexpectedly impair its ability to adopt the measures in the ESG Annex, the reference form must be updated and accompanied by a justification of the change in question.

In establishing these latest ESG measures, B3’s Issuer Regulations go beyond similar practices and rules in other countries – positioning Brazil at the forefront of diversity issues in corporate environments. They also promote further transparency regarding how ESG components are factored into director and statutory officer remuneration.

For further information, please contact Mattos Filho’s ESG, Corporate/M&A and Capital Markets practices.