Increasing concerns regarding environmental, social, and governance (ESG) compliance have led to greater scrutiny on corporations. U.S. and UK regulators have initiated measures to distinguish real ESG efforts from cosmetic ones. Brazil, too, must establish effective measures in light of its exposure to EU regulations. 

In April 2023, the EU Parliament’s Legal Affairs Committee endorsed the Corporate Sustainability Due Diligence Directive (CS3D), aiming to enhance corporate accountability for environmental and human rights impacts, including those from subsidiaries and value chains. The CS3D builds on laws like Germany’s Supply Chain Due Diligence Act and France’s Potier Law but emphasizes proportionality to company turnover rather than workforce size. 

The CS3D mandates identifying, preventing, mitigating, and accounting for operational impacts on human rights and the environment. Enhanced due diligence requires integrating sustainability into company agendas, operations, and supply chains, with punitive measures for violations. It also enables victims to seek damages through civil liability claims. 

Brazil’s ESG framework is comprehensive but lacks focus on subsidiaries and supply chains. Law No. 6.404/1976 requires companies to disclose ESG information in annual reports. The Brazilian Securities Exchange Commission’s (CVM) 2009 rule (CVM No. 480/2009) promotes transparency in environmental, sustainability, and social responsibility initiatives. However, Brazil’s regulations have conceptual gaps that hinder consistent enforcement. 

EU directives have influenced Brazil’s regulatory framework, but measuring ESG rule effectiveness remains challenging. Brazil’s political instability further complicates consistent ESG rule enforcement. Collaborative efforts from regulators and companies are needed to create models aligning with international standards and addressing Brazil’s unique challenges. The CS3D’s roadmap and supply chain focus may help Brazil fill regulatory gaps, facilitating better ESG rule enforcement. 

Sources: 

https://www.kroll.com/en/insights/publications/cs3d-impact-brazil-esg-compliance 

https://assets.ey.com/content/dam/ey-sites/ey-com/pt_br/topics/climate-change/ey-brazilian-tax-reform.pdf