Updated notice of deadlines of new sustainability regulations of the Central Bank of Brazil

In September and October 2021, the Central Bank of Brazil (“BACEN”) published, within the context of the BACEN Sustainability Agenda, the New Rules on Integrated Risk Management.

Demarest’s ESG team previously discussed the new regulations and provided context on the historical development of the topic, from the publication of sustainability reports to the inclusion of environmental and social liabilities in the internal policies of institutions, available at the following link.

The new rules announced by BACEN will enter into force throughout 2022.

As a result, we recommend that increased notice be taken of the deadlines set by the Central Bank of Brazil, as highlighted below:

1- CMN RESOLUTION No. 4,943, OF SEPTEMBER 15, 2021: Amends Resolution No. 4,557, of February 23, 2017, specifically regarding the risk management framework, reflecting ESG–themed issues.

The framework must provide for methods to address social, environmental and climate risks, in order to be compatible with the Social, Environmental and Climate Responsibility Policy, the compliance policy and other policies established by the Brazilian National Monetary Council (“CMN”).

Furthermore, operational risk databases must include data on operational losses related to social, environmental and climate risks, as listed and discussed in Section VIII of the Resolution.

Finally, institutions classified as S1 or S2 no longer need comply with Resolution 4,327, of 2014, regarding “socio-environmental” risk, and instead observe  the new measures.

Deadline: Institutions classified as S1 or S2 must scenarios, within the scope of the stress test program, that consider potential changes in climate patterns and the transition to a low-carbon economy, as of December 01, 2022.

Institutions classified as S3 or S4 must add social, environmental and climate risk to the scope of their risk management framework, adapting it to the identification, measurement, assessment, monitoring, reporting, control and mitigation standards detailed in the Resolution, as of December 01, 2022.

 2. CMN RESOLUTION No. 4,944, OF SEPTEMBER 15, 2021: Amends Resolution No. 4,606, of October 19, 2017, regarding the additional requirements for the simplified framework for continuous management of risks derived from its products, services, activities or processes.

As such, specific social, environmental and climate risks are added to the Resolution, replacing the concept of generalized “socio-environmental” risk.

The framework must also provide for:

• • mechanisms for identifying, evaluating, classifying, and measuring risks;
  • procedures for adapting its management to relevant external changes that can impact the institution in a material way; and
  • clear and verifiable criteria for assessing risks, not only for the institution itself, but also for its counterparties, the entities it controls, and its outsourced service providers.

 Deadline: Effective from December 01, 2022.

3. CMN RESOLUTION No. 4,945, OF SEPTEMBER 15, 2021: Provides for the Social, Environmental and Climate Responsibility Policy (“PRSAC”) and practices aimed at ensuring its effectiveness.

It is a set of ESG principles observed by institutions of all segments, established in the BACEN’s classification through Resolution No. 4,553, of 2017.

An institution must observe such Policy when carrying out its business, core activities, processes and also regarding its relationship with stakeholders, enforcing it in a way that is compatible proportionally to its business model, the nature of its operations, the complexity of its services and its size, as well as relevance to environmental, climate and social risks.

The subject of governance is addressed in order to highlight the need to:

• • appoint an officer who is responsible for ensuring compliance with the Resolution, in order to assist any decision making related to PRSAC;
  • implement, monitor and improve practices for the Policy’s effectiveness;
  • and disclose information related to the Policy in a compliant and reliable manner.

Deadline: Institutions classified as S1 or S2 no longer need comply with provisions of Resolution No. 4,327 of 2014, regarding the Socio-environmental Responsibility Policy, as of July 01, 2022.

 Institutions classified as S3, S4, or S5 must comply with the provisions of the Resolution as of December 01, 2022.

4. BCB RESOLUTION No. 139, OF SEPTEMBER 15, 2021: Provides for the disclosure of the Report on Social, Environmental and Climate Risks and Opportunities (“GRSAC” Report), which must be disclosed by institutions classified under S1, S2, S3 and S4.

The GRSAC must include the:

(a) risk management governance, listing the roles and responsibilities of the respective institutional bodies;

(b) effective and potential impacts of the risks; and

(c) management procedures.

The disclosure of information must be carried out annually via three separate tables related to each topic above. Institutions that fall under segments S1 and S2 are obliged to disclose all, while those that fall under segments S3 and S4 are only required to disclose information described in item  “a” above.

Deadline: Effective from December 01, 2022.

5. BCB NORMATIVE INSTRUCTION No. 153, OF SEPTEMBER 15, 2021: Establishes standardized tables for the purpose of disclosing the Report on Social, Environmental, and Climate Risks and Opportunities.

Deadline: Effective from December 01, 2022.

6. BCB RESOLUTION No. 151, OF OCTOBER 6, 2021: Provides for the disclosure of information on social, environmental and climate risks addressed in Resolution No. 4,557, of February 23, 2017, and CMN Resolution No. 4,945, of September 15, 2021.

Disclosure is mandatory for institutions classified as S1, S2, S3 or S4.

The declaration consists of the institution’s baseline information, together with information on  the addressing, assessment and classification of risks, in accordance with its PRSAC.

Deadline: Institutions classified as S1 must disclose their information as of  December 2022.

Institutions classified as S2, as of June 2023.

Institutions classified as S3, as of December 2023.

And institutions classified under S4, as of June 2024.

Demarest’s ESG team is available to provide further clarifications on the New Rules of the Central Bank of Brazil and other related topics.