Brazilian Central Bank proposes new rules for risk management with a focus on ESG

​Public Consultation Notice No. 85/2021, published last Wednesday (April 7) by the Brazilian Central Bank, presents new regulatory proposals aiming to improve the rules for social, environmental, and climate risk management applicable to the National Financial System (SFN), in line with other measures already adopted by the monetary authority regarding ESG (Environmental, Social and Governance) issues. In addition, the document also introduces requirements that institutions must observe in developing of their Social, Environmental, and Climate Responsibility Policy (PRSAC).

The new rules for risk management focus on the possibility of institution suffering losses. Among the highlights are the redefinitions of “social risk,” now related to violations of fundamental rights or collective interests, and “environmental risk,” associated with acts of environmental degradation.

The proposal innovates by introducing concepts of climate risks such as “transition”, consistent with the transition towards a low carbon economy; and “physical climate risk,” related to events associated with extreme environmental conditions resulting from climate change. It recommends that these should be considered together with more traditional risks such as credit, market, liquid, and operational risks.

Based on the new guidelines, the document states that more complex institutions should conduct an analysis considering climate change and the transition to a low-carbon economy.

The new rule focuses on positive contributions in regard to PRSAC, setting guidelines for business orientation and relationships with customers, suppliers, and others. The requirements for implementing actions have also been modified, seeking to strengthen governance structures and disclosure requirements.

Interested parties may contribute to the public consultation until June 5, 2021, through the BC website or by email at [email protected].

BC# Agenda and ESG measures

The Brazilian Central Bank’s new agenda intends to establish a series of measures and rules focused on sustainability, recognizing its importance to the economy and the SFN while selecting this to be the focus of the “Sustainability” pillar of the BC# Agenda.

Besides the proposals presented in the Consultation Notice, the National Monetary Council and the Brazilian Central Bank have been making several changes towards the implementation of Environmental, Social and Governance (ESG) measures:

• Resolution No. 4,327 of April 25, 2014, provides guidelines for the establishment and implementation of the Socio-environmental Responsibility Policy by financial institutions and other institutions authorized to operate by the Brazilian Central Bank;
• Introducing the theme of “sustainable finance” theme to the Brazilian Central Bank’s Museum, making its visitors aware of its importance and practice;
• Stimulating the reduction of environmental impact by checking the rolling stock processes (analysis of environmental impacts of production, distribution, collection, and sanitation);
• A recommendation to identify links in the chain for economic, energy and environmental optimization, as well as the Task Force on Climate-Related Financial Disclosures’ (TCFD) recommendations and the Brazilian Central Bank’s integrated risk management.

For more information, contact Mattos Filho’s Environmental, ESG, and Banking & Finance practice areas.