Central Bank of Brazil launched public consultation regarding management of social, environmental and climate risks and requeriments of the Policy of Social, Environmental and Climate Responsibility

In brief

On April 7, 2021, a new Public  was launched by the Central Bank of Brazil, aiming to improve the rules of social, environmental, and climate risks management, as well as the requirements regarding the Policy of Social, Environmental and Climate Responsibility.

Determinations

The  consultation are based on two regulatory proposals:

• Social, Environmental, and Climate Risks Management: Resolution No 4,557/17 (institutions classified as S1, S2, S3, and S4) and Resolution No 4,606/17 (institutions classified as S5) will be amended. The proposal provides definitions of the risks mentioned above and indicates that the risk management must be integrated, enabling the measurement, evaluation, report, control, and mitigation of the adverse effects resulting from the interactions between the mentioned risks. It is important to highlight, for example, the transitional climate risk, which can be defined by changes in legislation or government action, as a result of the transition to the low-carbon economy; changes in the offer and demand for products and services as a result of the transition to the low-carbon economy, etc.
• The Policy of Social, Environmental and Climate Responsibility: creation of a new Resolution regarding the subject (institutions classified as S1, S2, S3, S4, and S5). In this proposal, the Institution implements positive actions in its business, in its relationship with clients, community, and other stakeholders.

Regarding the social, environmental, and climate risk management, it is possible to identify an intention from the Central Bank to strengthen the social, environmental and climatic aspects, since, for example, risk events must be managed before their possible occurrence.

As for the Policy of Social, Environmental and Climate Responsibility, principles and guidelines of a social, environmental and climate nature must be established, as well as actions for the effectiveness of the Policy and the criteria for evaluating the effectiveness of the actions, which will be mandatory disclosed.

Still on the topic of the Policy of Social, Environmental and Climate Responsibility, there is also a commitment seen as positive in updating the governance rules in this new proposal, as the S1 and S2 institutions must have the Social, Environmental and Climate Responsibility Committee linked to the Board of Directors. Furthermore, the Board of Directors will have its duties defined by the proposal, for example, obligation to ensure that the remuneration structure does not encourage behavior incompatible with the new Policy.

Lastly, until June 5, 2021, it is possible to send suggestions to the Public Consultation on the website of the Central Bank of Brazil or by e-mail.

Our Environmental and Sustainability team is available for further clarifications on the subject.