Check out our ESG Newsletter, which gathers information on recent legislation, news, public consultations, and bills concerning the sector in Brazil.
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Demarest’s ESG Team
GRI addresses sustainable reporting standard for the coal sector
The Global Report Initiative (“GRI”) sector standard was designed to help identify the most significant impacts in the coal sector and how coal producers can contribute to sustainable practices.
GRI 12: Coal Sector 2022 applies to organizations involved in exploration, mining, and processing of thermal and metallurgical coal. The standard also includes organizations that supply equipment and provide services to coal mines, as well as transportation and storage of coal.
As stated by the GRI, global requirements to curb climate change call for extreme reductions in coal consumption and production, given that companies operating in the sector can significantly contribute to negative environmental and socio-economic consequences. GRI 12: Coal Sector 2022 addresses the need for reporting so that coal organizations disclose their measures to transition to a low-carbon economy.
The GRI 12: Coal Sector 2022 will be effective as of January 01, 2024. This means its application is required from coal organizations from that date onwards, allowing them to incorporate GRI 12 into their materiality considerations and start collecting data on any topics and/or disclosures they potentially have not reported yet.
Source: GRI 12: Coal Sector 2022
ICMBio and BNDS sign remuneration agreement for forest conservation
In April, 2022, the Chico Mendes Institute for Biodiversity Conservation (“ICMBio”) entered into a technical cooperation agreement with the Brazilian National Bank for Economic and Social Development (“BNDES”) to enable Payment for Environmental Services (“PSA”) and carbon credits in forest conservation units.
The Minister of Environment stated that the agreement provides the government with the opportunity to grant concessions for preservation. “That means granting a concession to someone who is going to protect, who is going to preserve that area and, consequently, generate native forest carbon credits within the Floresta+ Carbono program and, as such, remunerate this activity of protecting and preserving the native forest.”
The project will take place in two stages.
• First, there will be a study regarding these services and the feasibility of this concession model.
• In the second stage, three projects will be structured to protect and regenerate six conservation units (UCs) in the Amazon.
The goal of the agreement is to use these concessions for PSA in the preservation of the Amazon and in the socio-economic development of local communities.
Ministry of Environment holds first competition for Recycling Credit Certificates
In May, 2022, the Ministry of Environment held the first Competition for Recycling Credit Certificates, following the approval of Federal Decree No. 11,044/2022, which created the Recycling Credit Certificate (“Recicla+”) in April 2022.
The Certificates are documents that attest to the masses of packaging or products effectively compensated by the restitution of the mass equivalent to these materials to the productive cycle. Such certificates can be acquired by companies to prove compliance with reverse logistics.
The request for issuance and the acquisition of the Recicla+ is voluntary.
According to the Ministry, Certificates of Recycling Credits equivalent to 7,228 tons of materials were auctioned, classified into plastic, paper, glass, and metals. Recycling agents raised BRL 550,460.66 through the auction.
The first material auctioned was plastic. Certificates equivalent to 2,700 tons of the material were sold at an average price of BRL 109.70 per ton. Next, paper was auctioned, with the sale of certificates for 3,525 tons. The average value was BRL 44.00/ton. 110 tons worth of metal credits were sold, with an average price of BRL 44.00/ton. Finally, the glass recycling credit competition sold credits for 892 tons at an average price of BRL R$ 105.62/ton.
Source: First competition for Certificates of Recycling Credits raises more than BRL 500 million; Federal Decree No. 11,044/2022
Federal Government publishes Decree establishing National System for the Reduction of Greenhouse Gas Emissions and Sectoral Plans for Mitigating Climate Change
In May 2022, the Brazilian federal government published Decree No. 11,075/2022, which establishes procedures for the development of Sectoral Plans for Climate Change Mitigation and establishes the National System for Reducing Greenhouse Gas Emissions (“SINARE”).
Regarding the Sectoral Plans for Climate Change Mitigation, the Federal Decree provides that such plans will establish a sequence of measurable and verifiable targets for the reduction of greenhouse gas emissions, through the use and transaction of certified emission reduction credits. In turn, the Ministry of Environment, the Ministry of Economy and related sectoral ministries, if there are any, will be responsible for proposing Sectoral Climate Change Mitigation Plans.
The sectors included in the National Policy on Climate Change can present, –within 180 days counted from May 19 2022, and extendable for an equal period of 180 days, – their proposals for the establishment of greenhouse gas emission reduction curves, considering the long-term goal of climate neutrality stated in the Nationally Determined Contributions (“NDC”).
The NDC reflect the international commitment pledged by signatories of the Paris Agreement to collaborate with the goal of inhibiting the increase in global temperature, to be achieved by the public sector, at various levels, and by the private sector.
According to the Federal Decree, SINARE is expected to serve as a single central registry of greenhouse gas emissions, removals, reductions, and offsets, and of acts of trade, transfers, transactions, and retirement of certified emission reduction credits.
Source: Federal Decree No 11,075/2022
FSB releases report on supervisory and regulatory approaches to climate-related risks
On April 29, the Financial Stability Board (“FSB”) released a report regarding a global approach to address climate-related risks, which is aimed at assessing, mitigating and overcoming financial vulnerabilities and reducing the risk of damaging market fragmentation.
The report aims to assist supervisory and regulatory authorities in developing their approaches to monitor, manage and mitigate risks resulted from climate change and to ensure consistent procedures across sectors and jurisdictions.
Climate-related risks, including physical, transitional, and liability risks, can be transmitted and amplified by the financial system. By focusing on the systemic aspects of climate-related financial risks, this report complements ongoing efforts of standard-setting bodies regarding methods to address climate-related financial risks for their respective sectors, developing approaches to climate risk oversight and regulation.
Report Targets:
• Assess supervisory and regulatory reporting and collection of climate-related data from financial institutions;
• Explore system-wide supervisory and regulatory approaches to assess climate-related risks, including the use of analytical tools, such as climate scenario analysis and stress testing;
• Assess the extent to which current policies and tools address climate-related risks.
ISSB forms working group on ESG practices with EU, USA and China
The International Sustainability Standards Board (“ISSB”) announced a new working group aimed at ironing out discrepancies across jurisdictions regarding climate and sustainability-related disclosure requirements.
In order to achieve this goal, a new advisory body was created, the Sustainability Standards Advisory Forum, whose focus is to facilitate regular dialogue between governments.
The working group consists of members of China’s Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the U.S. Securities and Exchange Commission.
The working group met in May and July, and published summaries of the meetings online. Input from the working group were considered by the ISSB during public meetings and will feed into the further development of the ISSB’s draft standards.
For more information please access the ISSB website.
GRI updates tool to help companies link sustainable development goals to GRI standards
A recent GRI resource assists companies in increasing their focus on how they are contributing to the UN’s Sustainable Development Goals (“SDGs”), using the GRI Standards – a commonly used sustainability reporting standards worldwide.
An updated version of Linking the SDGs and the GRI Standards is now available for organizations of all sizes and sectors. In addition to being a free resource, the tool maps the disclosures of the Standards compared to the targets set in each of the 17 SDGs, facilitating the measuring, tracking, and communication of the progress achieved in regard to the Global Goals. The latest version includes GRI Universal Standards 2021, as well as GRI 11: Oil and Gas Sector 2021.
Other resources available include:
• tools for integrating the SDGs into sustainability reporting;
• results from the SDG Business Leadership Forum;
• the Rising Tide podcast series; and
• real-life case studies on how companies are incorporating reporting on the SDGs.
GRI also offers an SDG mapping service and a GRI Academy course on SDG reporting.
For more information access the official site of the GRI
European Union approves 40% quota for women on company boards by 2026
The Council of the EU and the European Parliament reached an agreement on a law to set gender balance targets for publicly traded companies in the European Union. The regulation establishes that, in boards without an executive function, the minimum percentage of women must amount to 40% of the seats. On the other hand, in boards with executive functions, such minimum will be of 33%. In both cases, deadline for compliance is June 2026.
The new law also intends to create transparent procedures to select board members and determines that if a company falls short of the minimum percentages, it will have to prioritize women candidates in its nomination procedures. In the event of non-compliance, the company will be subject to fines and even the annulment of the appointment of board members.
Source: EU agrees ‘landmark’ 40% quota for women on corporate boards | Women in the boardroom | The Guardian
Public banks have BRL 411 billion available for financing green projects
According to the Ministry of Environment, Brazil has around BRL 411 billion available for financing green projects through federal public banks, from October 2021 to December 2022. In order to combine economic growth with development with sustainable initiatives, improve the management of natural resources, and generate green jobs, the federal government created the National Green Growth Program in 2021.
Managed by the Interministerial Committee on Climate Change and Green Growth (CIMV), the Program’s actions are present in several ministries and aim to foster the preservation of forests and protection of biodiversity, reduce greenhouse gas emissions, and stimulate public and private fundraising from national and international sources.
Among the sponsored initiatives are the National Solid Waste Policy and the National Reverse Logistics Program, measures that seek to establish criteria and develop procedures to accelerate the closure of landfills and encourage recycling, in order to transform waste into green investments.
Source: MMA
STF orders the release of resources for the climate fund
Ten of the eleven justices of the Federal Supreme Court (“STF”) followed the vote of rapporteur Luís Roberto Barroso to determine that the government must release the resources from the Climate Fund, which aims to mitigate the impacts of climate change. The STF also recognized the federal government’s omission in light of the failure to fully allocate the funds for the year of 2019.
The Claim of Non-compliance with a Fundamental Precept (“ADPF”) 708, was filed by four political parties – PSB, PSOL, Rede, and PT –, aiming to determine that the federal government reinstate the revenue mechanism that makes up the Climate Fund.
The Climate Observatory (“OC”) drafted a technical note on the Climate Fund, which served as a contribution for the lawsuit filed by the political parties. Besides the OC, other organizations supported by the iCS (Conectas, Alana Institute, and Brazilian Association of the Public Prosecutor’s Office), provided legal and technical support and acted as amicus curiae in ADPF 708.
Source: STF prohibits contingency of Climate Fund resources
Federal Government publishes Constitutional Amendment on biofuels
On July 14, 2022, the federal government published Constitutional Amendment No. 123/2022, to amend Article 225 of the Federal Constitution to establish a competitive differential for biofuels.
Such Amendment inserts art. 120 in the Transitory Constitutional Dispositions Act to recognize the state of emergency resulted from the extraordinary and unpredictable rise in prices of oil, fuels and their derivatives, as well as the resulting social impacts of such rise.
Finally, the Amendment authorizes the federal government to provide financial assistance to states and the Federal District that grant tax credits for state value added tax (“ICMS”) to producers and distributors of hydrous ethanol.
In addition to expanding the “Brazilian Gas” aid, provided for in Law No. 14,237/2021, the Amendment also establishes a stipend for self-employed truck drivers.
Source: Constitutional Amendment No. 123/2022
Brazil and Japan enter into first agreement to foster regulated carbon market
On July 13, 2022, the Minister of the Environment of Brazil and the Ambassador of Japan in Brazil met to execute a bilateral agreement between Brazil and Japan to foster a regulated carbon market, in order to reduce gas emissions and contribute to the goals set during the 2021 UN Climate Change Conference (“COP 26″).
The Brazilian Minister of Environment and the Ambassador of Japan emphasize the importance of creating bilateral investment opportunities in green solid waste treatment projects, in order to generate clean energy and decrease methane emissions.
For more information, access our report: ESG Newsletter | Brazil and Japan sign the first bilateral agreement to encourage the development of the regulated carbon credits market
UN General Assembly adopts Resolution on rights related to the environment
On July 28, 2022, the United Nations General Assembly recognized that access to a clean, healthy and sustainable environment is a universal human right, by means of Resolution A/76/L.75
The Resolution recognizes that the impact of climate change, unsustainable management and use of natural resources, pollution of air, land and water, unsound management of chemicals and waste, and loss of biodiversity, interfere with the use of right to a clean, healthy and sustainable environment. The Resolution calls upon States, international organizations and business enterprises to increase efforts aimed at securing a healthy environment for all.
Referring to the resolution as a “historic” decision, UN Secretary-General António Guterres stated that “the Resolution will help reduce environmental injustices, close protection gaps and empower people, especially those in vulnerable situations, including environmental human rights defenders, children, youth, women and indigenous peoples.”
Source: UN General Assembly declares access to clean and healthy environment a universal human right | | UN News; The right to a healthy environment: 6 things you need to know | | UN News
Equator Principles Association publishes guide for financial institutions
The Equator Principles establish a risk management framework developed by the Equator Principles Association (“EPA”), a group of supporting financial institutions, to provide a minimum standard for identifying, assessing and managing environmental and social risks when financing a project.
The principles were designed to apply to large infrastructure and industrial projects and take into account the UN Guiding Principles on Business and Human Rights, the Paris Agreement objectives and biodiversity objectives. To date, the Equator Principles have been adopted by 134 financial institutions in 38 countries, including the UK, US, Brazil, China and India.
In July, the EPA published a Guidance Note to Support Effective and Consistent Application of the Equator Principles, focusing, in summary, on two matters:
• Environmental and Social Due Diligence carried out by consultants: the note details best practices for the process of selecting consultants and their scope of work, including pre-financial due diligence, ongoing monitoring, and specific due diligence procedures depending on the country where the project will take place.
• Environmental and Social Impact Assessments (ESIAs) undertaken by borrowers: the note addresses the scope of work carried out by financial institutions as part of the ESIA process, either before the borrower has undertaken an ESIA or when a financial institution reviews the ESIA provided by the borrower. It includes advice on contracting capable ESIA service providers, selection of specialist staff (e.g., to include biodiversity specialists, climate change risk consultants or human rights risk assessors) and identification and engagement of stakeholders (including local communities and their legitimate representatives).
The guide contains checklists, program outlines, document revision lists and templates.
European Union adopts SFDR technical standards for products that encourage sustainable investment and environmental or social criteria
On July 25, 2022, the European Union adopted a set of regulatory technical standards (“RTS”) in Delegated Regulation 2022/1288, supplementing the Sustainable Financial Disclosure Regulation (“SFDR”).
The RTS includes templates for pre-contractual and ongoing disclosure, applicable to financial products that promote sustainable investments or, alternatively, environmental or social features (also known as Article 8 and Article 9 Financial Products), as well as to firms that take key adverse impacts into consideration. The RTS will apply from January 01, 2023.
The European Supervisory Authorities developed the RTS in order to enhance the content, methodologies and presentation of the information required by the SFDR in regard to products and companies with significant enthusiasm for sustainability, and, therefore, to improve the quality and comparability of the information provided in the disclosures. The RTS was also designed to provide financial market participants with a degree of certainty to prepare future disclosures.
Regulation: Publications Office (europa.eu)
ANBIMA identifies 22 sustainable funds under the new rules
In the first half of 2022, 22 equity and fixed income funds identified themselves as sustainable according to new rules set by the Brazilian Association of Financial and Capital Market Entities (ANBIMA).
Of this total, 17 funds earned the Sustainable Investment (“IS”) designation. The other 5 integrate ESG practices in their management procedures, but do not have sustainable investment as their main objective. As such, they do not use the term “IS”, but investors can identify them through the phrase “this fund integrates ESG issues in its management”, present in sales materials.
In order to use the “IS” suffix, funds must prove that their portfolios are aligned with a sustainable purpose. In addition, the fund manager must meet a series of requirements related to the fund, such as defining and disclosing data and strategy, including methodology. The institution must also inform the tools and the engagement carried out by the fund; indicate potential limitations; and point out actions for measuring and monitoring ESG goals.
In case of products that integrate ESG aspects, the commitment to consider these issues in the management process must be included in formal fund documentation. In addition, the filters, indicators and other metrics used in the fund’s assets must be highlighted in the methodology. Furthermore, the fund manager must meet requirements related to commitment, governance and transparency.
Source: ANBIMA identifies 22 sustainable funds according to new rules
IFC creates fund to tokenize carbon credits
The International Finance Corporation (IFC), a member of the World Bank Group, announced on August 18, 2022, a USD 10 million fund for a new blockchain-based carbon credit transaction platform.
The Carbon Opportunities Fund will use the Climate Warehouse, a system under development by the World Bank, in partnership with Chia, a technology company specialized in cryptocurrency.
Source: IFC creates fund to tokenize carbon credit
BNDES starts buying BRL 100 million in carbon credits
On August 30, 2022, the Brazilian National Bank for Economic and Social Development opened a public call for the purchase of up to BRL 100 million in carbon credits in Brazil.
According to the 2nd Public Call Notice, the idea of the investment aims to ensure that projects meet appropriate quality standards for carrying out initiatives to reduce greenhouse gas emissions.
The priority of investment rests on projects focused on reforestation, avoided deforestation, biomass or methane energy, and sustainable agriculture sector.
The BNDES intends to purchase both credits already issued, in addition to projects that have been validated or are in the validation process but have not yet generated carbon credits.
Source: BNDES begins purchasing BRL 100 million in carbon credits
CIFF launches Voluntary Carbon Markets Integrity Initiative
The Voluntary Carbon Markets Integrity (“VCMI”) Initiative is a multistakeholder Initiative co-funded by the Children’s Investment Fund Foundation (“CIFF”) and the UK Department for Business, Energy and Industrial Strategy.
The Initiative was established to provide guidance on how companies can use voluntary carbon markets with transparency (including the use of carbon credits) in order to contribute to climate change mitigation.
The VCMI Initiative’s Claims Code of Practice is supported by the British government and assists companies in developing scientifically-sound claims in regard to the use of carbon offsets, including by providing guidance on the use of carbon credits as part of commitments to achieve net zero emissions.
In order to increase the transparency of corporate climate commitment claims, before a company makes an announcement related to the purchase of carbon credits, short-term science-based targets to reduce emissions must also be developed. According to the VCMI, companies must rely on credible organizations to formulate and carry out these science-based purchases and commitments.
Source: VCMI-Provisional-Claims-Code-of-Practice.pdf (vcmintegrity.org)
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