B3 opens public hearing on environmental, social and governance matters

On August 17, 2022, B3 opened a public consultation regarding a proposal for an Annex to the Regulation for Listing of Issuers and Admission to Trading of Securities, aiming to gather contributions from market agents, companies, investors, regulators, organizations and other interested parties, and align B3’s rules with the recent regulatory flow – both in Brazil and abroad – related to Environmental, Social and Corporate Governance (“ESG”, or ASG in Portuguese) issues.

This is an important step for the exchange to strengthen its governance rules in the light of diversity and inclusion criteria.

In this sense, B3 proposes the creation of the Annex to the Issuers Regulation with measures applicable to listed companies related to ESG practices, with emphasis on gender diversity and inclusion in high leadership positions.

B3 proposes that compliance with the measures set forth in the Annex be carried out by the companies in the “practice or explain” model, whereby it will be up to the issuer to present evidence of the execution of the practice established in the rule or to justify the absence of non-compliance, even if partial.

It is proposed that the contents of Appendix I apply equally to listed companies subject to the Issuer Regulation, regardless of their listing level (i.e., Basic, Corporate Governance Level 1, Corporate Governance Level 2, Novo Mercado, Bovespa Mais, and Bovespa Mais Level 2).

However, according to international trends and due to the Brazilian regulatory context, occasional exceptions were established, based on the intrinsic characteristics of certain issuers.

In this case, the following companies will be exempt from complying with B3’s proposal:

• those registered as a public-held company in category B before the Brazilian Securities and Exchange Commission (“CVM”);
• small companies, pursuant to article 294-B of Law No. 6,404/1976;
• companies benefiting from resources originating from tax incentives, regulated by CVM Resolution 10/2020; and
• issuers of Sponsored Brazilian Depositary Receipts (“BDRs”).

The Annex at issue provides for four ESG measures, organized in sections related to management composition and company documents.

• ESG Measure 1 – Management Composition: To elect, as a full member of the board of directors or statutory board, at least one woman and one member from a minority community, including considering the adaptation period, or a member who cumulates both characteristics.

• ESG Measure 2 – Nomination Procedure: To establish a procedure for the appointment of members of the board of directors and of the statutory management in the company’s bylaws or in the Appointment Policy, including, at least, criteria of: a) complementarity of experiences; and b) diversity in terms of gender, sexual orientation, color or race, age group, and inclusion of people with disabilities.

• ESG Measure 3 – Compensation of Directors: To define, in the compensation policy or practice, performance indicators linked to ESG themes or targets, when there is variable compensation for members of the board of directors or statutory management. B3 emphasizes that the metrics and targets must be outlined with caution and aligned with the company’s strategy and business model.
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• ESG Measure 4 – ESG Practice Disclosure Document: To draft and  disclose a document, approved by the board of directors, on ESG guidelines and practices, contemplating a minimum content, including (a) fight against discrimination, (b) respect for human rights and labor relations, (c) defense of animals against suffering and mistreatment, (d) protection of the environment against harmful activities, (e) treatment of solid waste and hazardous chemicals; as well as corporate governance and compliance mechanisms that indicate how such ESG guidelines and practices are implemented in the company.

B3 will receive contributions for the proposals presented at the public hearing until September 16, 2022, through the e-mail sre@b3.com.br.

Demarest’s ESG and Capital Market teams are available to provide further information and clarify any doubts that may be necessary.

Sources:
https://www.b3.com.br/pt_br/noticias/audiencia-publica-asg.htm