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In a significant development poised to impact the landscape of Sustainability and Environmental, Social, and Governance (ESG) the Brazilian government and its Ministry of Finance (MoF), in addition to the Securities and Exchange Commission (Comissão de Valores Mobiliários) have announced two new implementations. The first, launched in September was the Sovereign Sustainable Bond Framework, a reference document for the issuance of sovereign debt securities using financial resources backed that directly contribute to promoting the country’s sustainable development.
The second announcement involves the adoption of the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 Disclosure Standards into the Brazilian regulatory framework, in what is expected to be the first step into requiring mandatory ESG reporting beginning January 1st, 2026. Both these announcements tie closely with one another and reaffirm Brazil’s commitment to sustainable policies, aligning itself with the growing interest of non-resident investors and the expansion of thematic bond markets worldwide. They are also landmark announcements made by the sustainability-minded and green economy focused stance President Lula da Silva and his administration are taking.
Adoption of ISSB
As part of its adoption, the Brazilian government has shared its intention to phase in mandatory ESG reporting with phase 1 of this transition expected to begin with voluntary use by listed companies from 2024 and mandatory reporting set to begin from January 1st, 2026. [1] The purpose of having a phased implementation as observed with other exchanges and jurisdictions worldwide who are also seeking to mandate ESG reporting for listed companies is because of the time it takes to develop capacity to produce high-quality climate-related disclosures and some disclosure requirements by their nature may require initial exemptions. [2]
The recently introduced standards by ISSB this June are being thought of as a global baseline for sustainability reporting, which can then be further developed and incorporated in their own way by local jurisdictions. IFRS S1 covers sustainability-related risks and opportunities faced over the short, medium, and long term, while IFRS S2 covers specific climate-related disclosures. [3]
The public authorities backing these initiatives, indicated that the incorporation of the ISSB’s Standards will have a positive impact on the financial space, and is very likely to help stimulate sustainable investment, enhance transparency in ESG reporting, and contribute to the Green Transition Package of the country. Moreover, the adoption of these standards is going to significantly help international investors in impact investing with the recent launch of the Brazilian Framework for Sustainable Sovereign Bonds.
Additionally, Emmanuel Faber, Chair of the ISSB, last week also acknowledged Brazil’s adoption as a testament to the substantial support received from the ISSB across the globe. He commended the Brazilian Ministry of Finance and the Securities and Exchange Commission for providing much-needed clarity to companies and investors in Brazil by outlining a well-defined roadmap toward mandatory reporting in January 2026. [4]
With this move, Brazil now aligns itself with other Latin American nations that have mandated sustainability-related financial disclosures. Chile, Colombia, and Peru for example are recent examples who have also been at the forefront of mandating sustainability-related financial disclosures and have embraced the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) Standards, which form the foundation for the ISSB Standards. [5]
Sustainability Framework for Sovereign Bonds.
With the launch of Brazil’s Sustainability Framework for Sovereign Bonds, there are seven distinct sections that encompass crucial topics within the framework. These sections include an overview of key concepts and a summary of the country’s public policies. The framework goes on to detail Brazil’s commitments, its status in the ESG space, and its sustainable finance agenda.
Within the framework, a comprehensive list of eligible expenses for sustainable bond issuance and the categories of activities associated are outlined with a connection to the environmental and social benefits. Notably, among these green initiatives are the preservation of native biomes, including measures to control deforestation in the Amazon rainforest regions, support for regional climate initiatives, renewable energy production, energy efficiency, and sustainable natural resource management.
Furthermore, the Framework lays out a rigorous process for assessing and selecting eligible expenses for financing through sustainable bonds. This ensures that raised funds are effectively directed towards eligible, high-impact expenses. It also outlines procedures for the management of raised funds, setting parameters for monitoring, measurement, and the publication of allocation and impact reports. Additionally, it addresses the potential for external verification by third parties. [6]
Meanwhile, from a regulatory standpoint, The Sovereign Sustainable Finance Committee (CFSS), played a significant role in crafting Brazil’s Sovereign Sustainable Bond Framework and overseeing the distribution and monitoring of funds. This implies that in the case of unallocated funds, they shall not be directed towards activities characterized as GHG-intensive.
Nonetheless, while the Brazilian Government has outlined its objectives with the sustainability framework, it lacks detailed implementation plans, especially for its goals in establishing a carbon market, which require legislative approval. Eligible projects within the Framework are likely to face delays due to lengthy administrative processes, such as environmental licensing, thus may further complicate the implementation process of the framework. [6]
The Brazilian government’s adoption of International Sustainability Standards Board (ISSB) standards for its Regulatory Framework and the launch of a Sustainability Framework for Sovereign Bonds represents a significant shift towards transparency and sustainability compared to the previous administration’s reluctance to support sustainable initiatives.
These announcements signify a more aligned approach with global sustainability trends, thanks to the proposed phased in approach to mandatory ESG reporting and a structured sustainable bonds framework for impact investing. Thus, this alignment is expected to attract investors, foster responsible investing, and create a promising ESG landscape.
Internationally, the Sustainability Framework for Sovereign Bonds can enhance Brazil’s reputation in sustainable finance and investment, appealing to foreign investors and reinforcing confidence in Brazil’s commitment to global sustainability goals.
Additionally, Brazil’s recent announcement of a public consultation for a Brazilian sustainable taxonomy further underscores its dedication to sustainable finance. The proposed taxonomy, slated for formal release in 2024 and mandatory adoption by 2026, could impact financial transactions and agreement provisions.
Sources
[3] https://www.pionline.com/esg/brazil-adopts-issb-standards-esg-disclosure
[4] https://www.irmagazine.com/regulation/brazil-adopts-issb-standards-mandatory-use-looming-2026
[7] https://www.lexology.com/library/detail.aspx?g=f67c2f79-4a66-4589-a02e-d1a55f7f8148
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