Brazil is the seventh largest cocoa producer in the world. But its main role is as an intermediary. Almost all the cocoa beans that arrive in Brazil come from Ghana or Ivory Coast. Here, they are processed, turned into butter, fat and oil or derivatives, and then exported. They end their trip on the shelves in Europe, those delicacies that we like so much. What is the problem? The families, small cocoa producers in these two African countries, often use their children to harvest and process the beans. In the region, it is estimated that more than 1.5 million children are in child labor, according to studies by the Cocoa Initiative (https://www.cocoainitiative.org). A bitter taste for companies, investors, and consumers, where the risks of the value chain are increasingly present, but are not always known or well addressed.
We at arara.io know that this is a complex issue that affects many other industries and countries. But we believe in the coordinated effort of the players in the supply chain. Regulators have already understood that this is a collective problem and are beginning to give visibility – and to hold accountable – to the actions and omissions of the parties involved, either directly or indirectly. In Brazil, B3, Anbima, CVM, and the Central Bank, among others, are creating new rules. Learn what is essential for you in this new regulatory framework that is starting.
The Central Bank is now requiring financial institutions to account for potential losses from climate change-related phenomena. For this, banks must establish a Social, Environmental and Climate Responsibility Policy (PRSAC) and implement actions to ensure its effectiveness, which will be mandatory as of December 1, 2022. And what does the new rule change?
The PRSAC foresees that the institution appoints a committee with a director responsible for compliance with the resolution. Banks will now have to capture ESG-related information from their clients to integrate it into risk management (and this must be aligned with the institution’s socio-environmental and climate responsibility policy);
Financial institutions must also disclose the levels of risks they are willing to assume, including social, environmental and climate risks.
Thus, it is clear that banks will have a role in helping the ESG agenda in Brazil – as they can evaluate the environmental impacts caused by a company to define the interest rate when granting a credit – and the real impact this brings to the economy, business, and investments. The regulators’ actions generate a cascading effect on the relationship with other stakeholders, as they impact credit taking, negotiations with banks and listed companies, and have even more repercussion when the company is listed on the stock exchange.
B3 is looking hard at the “S” in ESG, perhaps the most worrying letter in the Brazilian spectrum, with diversity rules for listed companies. B3’s proposal was in public hearing until September and will come into effect from 2023, in a phased manner, after passing through the approval of the Securities and Exchange Commission (CVM). B3 wants companies to have variable remuneration policies linked to the topic.
By 2026, companies will have to have at least one woman and one member of the “minority community” – which includes black people, people who identify themselves as LGBTQIA+, or people with disabilities – on the board of directors or the executive board in statute. Those who do not comply will have to justify themselves and make a move to conform. Today, of the 423 listed companies, 61% have no women on the statutory board and 37% have no women on the board of directors. In the racial cutout, most of the companies do not even report the data.
B3’s change follows the regulatory line of the Securities and Exchange Commission of Brazil (CVM), which requires companies to disclose ESG information in the reference form, starting next year.
Anbima has established new references to define sustainable investment funds, similar to the new classification of the European authority, the EU Sustainable Financial Reporting Regulation. Those with sustainability as their purpose will be able to use the suffix IS (Sustainable Investment) in their name. Funds that integrate ESG issues, but do not have sustainability as a purpose, will not have this distinction. However, they may include a phrase stating this status in their sales materials. Funds that do not prove that they are sustainable will be required to exclude any term that refers to this, such as ESG, ASG, green, impact, and others.