CVM requires companies disclose financial information related to sustainability in Brazil

On October 20, 2023, the Brazilian Securities and Exchange Commission (CVM) issued Resolution No. 193, set to take effect on November 1, 2023. A pioneering move, the resolution makes Brazil the first country to adopt International Sustainability Standards Board (ISSB) standards for the preparation and disclosure of sustainability-related financial information by publicly-held companies, investment funds, and securitization companies.

Seeking to align local practices with the most sophisticated sustainability information disclosure practices worldwide, the CVM has listed the principles it followed in the resolution itself. In particular, there was a focus on the importance and the necessity of:

• The disclosed information becoming increasingly transparent, reliable, consistent, and comparable;
• Establishing measures to enhance transparency around sustainability-related risks and opportunities that affect entities in the capital markets, in order to contribute to the development of a sustainable, regenerative economy; and
• Implementing disclosure standards for policies and procedures companies adopt to address and mitigate the impacts of climate change, as well as social and environmental risks.

The ISSB was created by the IFRS Foundation, an international organization that has developed the most widely accepted accounting standards worldwide. Established at COP26 in November 2021, the ISSB aims to create a high-level benchmark for sustainability disclosures that focuses on the needs of investors and other actors in financial markets. The ISSB released its first standards In June 2023 – IFRS 1 (regarding the disclosure of financial information related to sustainability) and IFRS 2 (regarding the disclosure of climate-related information) – which were built on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and the standards of the Sustainable Accounting Standards Board (SASB).

The CVM has approved Resolution No. 193 even before the IFRS 1 and IFRS 2’s compatibility with Brazilian regulation has been finalized (this is currently being undertaken by the Brazilian Committee of Sustainability – CBPS), establishing the disclosure date, format, and target audience for such obligations.

However, for the purpose of analyzing the regulatory impact of the new obligations, the CVM will still carry out a public consultation (as provided for in Decree No. 10,411/2022) on the ISSB standards, which the CBPS will translate and approve so they may be incorporated into Brazilian law. The aim of the public consultation is to gather information on the effects, challenges, and benefits of adopting the obligations, and although a date has yet to be defined, the deadlines for adopting the standards in Resolution No. 193 mean the public consultation should commence soon.

The new resolution also comes in the wake of a recent recommendation from the International Organization of Securities Commissions (IOSCO). This organization seeks to harmonize the disclosure of sustainability-related information, particularly in regard to assessing risks and opportunities, promoting an effective and proportional global framework that is interoperable at the international level.

Criteria for adopting the standards and starting disclosures

For publicly-held companies, investment funds and securitization companies, the ISSB standards are optional as of January 1, 2024. The use of the reliefs provided by the standards is also authorized during this period. However, after January 1, 2026, both category A and B publicly-held companies must carry out disclosures (in Portuguese) in accordance with ISSB standards.

Entities that voluntarily adopt the ISSB standards must communicate their intentions to the market, indicating the first fiscal year the standards will be observed. In the case of publicly-held companies, however, this indication should preferably be communicated by May 31, 2024, with the ultimate deadline (including for reviews) falling on December 31, 2024. Investment funds and securitization companies must communicate their intention to adopt the standards by the end of the fiscal year prior to the first report disclosed in line with ISSB standards.

Until the CBPS finalizes the process of internalizing these standards in Brazil, entities opting to adopt the standards for disclosing financial information related to sustainability must do so in line with the version issued in English by the ISSB.

Disclosure frequency and form

CVM Resolution No. 193 also provides that the relevant entities must report financial information related to sustainability at least as often as they disclose their financial statements at the end of each fiscal year. As such, during the period for voluntary adoption and the first fiscal year of obligatory adoption (for publicly-held companies), disclosures must be made on the same day the CVM Reference Form is submitted. As of the second fiscal year of obligatory adoption, this disclosure must be made either within three months of the end of the fiscal year or on the same date as the financial statements are submitted – whichever comes first.

Although the ISSB standards were designed to be disclosed together with financial statements, Resolution No. 193 establishes that reports based on these standards must be submitted separately from the entity’s other information and financial statements. Moreover, they must be filed online through the system available on the CVM’s website.

Independent assurance

 Resolution No. 193 also provides that reports on financial information related to sustainability must be subject to assurance by an independent, CVM-registered auditor in compliance with Federal Accounting Council (CFC) standards. Limited assurance is sufficient until the end of the 2025 fiscal year, however, reasonable assurance – involving a more rigorous process – will be required as of the fiscal year beginning January 1, 2026.

For further information on this topic, please contact Mattos Filho’s ESG, Capital Markets, Corporate/M&A and Asset Management Services & Investment Funds practice areas.