Regulation on Social, Environmental and Climate Responsibility Policy applicable to prudential conglomerate classified as Type 3

On June 27, 2023, the Central Bank of Brazil (“BCB”) published BCB Resolution No. 331 (“Resolution No. 331/2023” or “Resolution”), which provides for the Social, Environmental and Climate Responsibility Policy (“PRSAC”), to be established by prudential conglomerates classified as Type 3, as well as the necessary measures to ensure its effectiveness.

The Resolution determines that the leading institution of a prudential conglomerate classified as Type 3, and classified under segments S2, S3, S4 or S5, as provided for by BCB Resolution No. 197, of March 11, 2022, must establish the PRSAC and implement measures that are:

(1) proportional to the business model, to the nature of operations and to the complexity of the products, services, activities and processes of the conglomerate; and

(2) appropriate in regard to the magnitude of exposure to social, environmental and climate risks provided for by BCB Resolution No. 265, of November 25, 2022.

It is worth highlighting that such actions must be continuously monitored and evaluated on their contribution to the effectiveness of the PRSAC, whose criteria must be clear and verifiable.

Resolution No. 331/2023 also defines the PRSAC as a set of principles and guidelines of social, environmental and climate nature, which must be observed by the prudential conglomerate classified as Type 3 while running its business, activities and processes, as well as in the relationship with its stakeholders. In order to establish the PRSAC, the following must also be observed:

• the social, environmental or climate impact of the activities and processes of the conglomerate, as well as the products and services offered;
• the conglomerate’s strategic targets, as well as business opportunities regarding social, environmental and climate aspects; and
• the competitive conditions and regulatory environment within which the conglomerate operates.

Regarding governance, the new Resolution establishes that the leading institution of the prudential conglomerate classified as Type 3 must appoint an officer before the BCB that will be in charge of carrying out the measures mentioned above, and whose attributions will involve:

(1) contributing and participating in regard to decisions relating to the establishment and to the review of the PRSAC, thus assisting the board of directors;

(2) the implementation of measures to ensure the effectiveness of the PRSAC;

(3) the monitoring and evaluation of the implemented measures;

(4) the improvement of the implemented measures, in the event of potential failures; and

(5) the proper and accurate disclosure of the information relating to the PRSAC, addressed in Article 10.

In addition, the constitution of a social, environmental and climate responsibility committee subordinated to the management board of Type 3 conglomerates – whose duties include providing recommendations for the establishment and reviewing the PRSAC, as well as assessing adhesion to the implemented measures and keeping records of these recommendations – is (1) mandatory for those framed under S2; and (2) optional for those framed under S3, S4 or S5.

As such, the board of directors of the conglomerate’s leading institution is in charge of approving and reviewing the PRSAC; ensuring compliance of the conglomerate with the policy; stimulating integration with other policies established by the conglomerate; and ensuring the correction of any failures, among other attributions.

The review of the PRSAC, in turn, must be carried out at least every three years or whenever any events regarded as significant by the institution take place, such as:

(1) the offering of new key products or services of the conglomerate;

(2) key changes in the products, services, activities or processes of the conglomerate;

(3) key changes in the conglomerate’s business model;

(4) key corporate reorganizations;

(5) political, legal, regulatory, technological or market changes, including major changes in consumer preferences, which materially impact the conglomerate’s business, both positively and negatively; and

(6) significant changes in regard to the size and importance of the conglomerate’s exposure to social, environmental and climate risks, as provided for by BCB Resolution No. 265, of November 25, 2022.

Finally, Resolution No. 331/2023 provides for the disclosure of important information about the PRSAC on the conglomerate’s leading institution website, including the policy itself; the implemented measures; the economic sectors subject to restrictions relating to social, environmental and climatic aspects; as well as products and services that contribute positively to these aspects, among others. Such information must be updated timely in the event of a review or of major changes made to the PRSAC.

BCB Resolution No. 331/2023 will enter into force on January 01, 2024, and is available at the BCB website.

Demarest’s Banking and Finance team is available to provide any further clarifications that may be necessary on the topic.