In the context of its proposed Regulatory Agenda for 2021, the Brazilian Securities and Exchange Commission (CVM) issued Resolution CVM 59 (“Resolution”) to amend provisions of CVM Instructions 480 and 481 relating to the rules on disclosure of information by issuers of securities. This is one of the recent regulatory reforms proposed by the regulator in the context of modernizing the rules applicable to publicly-held companies, including to follow trends adopted in international markets.
The Resolution is the result of Public Forum SDM No. 09/20, whose main objective was to propose the reduction of compliance costs for issuers of securities and review the content of the Reference Form. Thus, the main objective of the new rule was to simplify disclosure requirements by publicly-held companies without prejudice to the substance of relevant information presented to investors, in order to eliminate redundancies without compromising the quality of information provided to the market. For this purpose, the structure of the Reference Form was reformulated into a more concise format, in line with what was introduced by CVM Guidance Opinion No. 39, of 2021, referring to the publication of summarized financial statements.
Additionally, following the global trend in this regard and the concerns of investors in the local market on the subject, the CVM added to the information contained in the Reference Form information requirements aimed at increasing transparency on disclosure of environmental, social and corporate governance practices (ESG) of publicly-held companies.
Initially opting to deal with the ESG topic in a more open way, the CVM made it clear in the public notice of the new Resolution that it has not ruled out the detailing of ESG information to be required from publicly-held companies, including in the scope of circular letters published by the Superintendence of Relations with Companies (SEP), in order to monitor the development of standardization initiatives that have taken place at the international level. Notwithstanding such approach, the new Resolution notes certain specific requirements already established by the regulator for disclosures, by publicly-held companies, related, for example, to climate issues and diversity in the composition of management and staff.
Regarding the information on ESG practices that are now required in the Reference Form, the following topics are highlighted (see, mainly, item 1.9 of the new Reference Form model provided for in CVM Resolution 39):
- Disclosure of main aspects related to compliance with legal and regulatory obligations as regards environmental and social issues, removing any doubts about the need to include information on voluntary measures.
- Replacement of the reference to aspects of “social and environmental policies” with information that presents greater visibility on “ESG information”, in a more comprehensive way.
- Indication of the disclosure of ESG information in an annual report or other document that fulfills this purpose, as well as an indication of the methodology for disclosing ESG information.
- Indication of whether the ESG information disclosed by the issuer is audited or reviewed by an independent entity.
- Indication of the webpage on the World Wide Web where the disclosed ESG information can be found.
- Indication of materiality matrix and ESG key performance indicators.
- Indication of whether the report or document in which ESG information is disclosed considers the Sustainable Development Goals (SDGs) and/or the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) or recommendations of financial disclosures of others recognized entities that are related to climate issues.
- Explanation for non-adoption of the ESG key performance indicator management policy (“practice or explain” model).
- Disclosure of the main performance indicators considered in determining the factors for the remuneration of managers, including, when applicable, those related to ESG matters.
- Indication of whether the issuer carries out greenhouse gas emission inventories.
- Diversity of managers, members of the audit committee and employees, with provision for the disclosure of information by hierarchical level, in the case of employees.
- Opportunities included in the business plan related to ESG matters.
In its Public Forum Report, the CVM emphasizes that, while it recognized the importance of specific topics of the ESG theme raised by several participants of the Public Forum, it chose not to expand or detail requirements related to ESG information in the context of this reform of CVM Instruction 480, in view of the objective of not making the final text excessively prescriptive at this time, and that future regulatory initiatives focusing on sustainability issues should not be ruled out.
In addition to the changes made due to the ESG agenda, the following amendments to CVM Instruction 480 and/or CVM Instruction 481, among others provided for in CVM Resolution 39, stand out:
- Reformulation of the structure of the Reference Form, in order to simplify the disclosure requirements for publicly-held companies and eliminate redundancies in disclosures, allowing its complementation with cross-references to other documents made available by the issuer on the CVM website.
- Reduction (from 3 to 1 fiscal year) of the time horizon in relation to which the information must be provided in the Reference Form, by already-registered issuers, including when they present the document in the context of a public offer for the distribution of securities.
- Limitation of the requirement for management comments only to significant changes in items in the income and cash flow statements, replacing the previously required comments on each item in the financial statements, with adjustment in the temporal scope of management comments in the Reference Form.
- Reformulation of the presentation of risk factors, with greater emphasis on the 5 (five) that are considered to have the greatest impact on the issuer.
- Additional clarifications on the provision of information regarding the diversity of the management body and employees and provision for the disclosure of information by hierarchical level, in the case of employees.
- Notes on cases in which transactions with related parties do not need to be disclosed by means of a specific notice pursuant to the current Attachment 30-XXXIII of CVM Instruction 481, subject to specific requirements, related to (a) loans and financial services; and (b) transactions preceded by bidding and other public procedures to determine pricing.
CVM Resolution 59 will come into effect on January 2, 2023. Demarest’s Capital Markets and Environmental Law teams are on hand to advise issuers and companies interested in the IPO process to prepare for these reforms.