On September 15, 2021, the Central Bank of Brazil (Central Bank) published the first Report on Social, Environmental and Climate Risks and Opportunities (Relatório de Riscos e Oportunidades Sociais, Ambientais e Climáticas), which consists of a set of rules addressing the management of social, environmental and climate risks within the Brazilian financial system. This long-awaited report is part of the new “#AgendaBC” of the Central Bank, which includes a number of the Central Bank’s strategies being undertaken to promote the country's financial stability.

The published standards contained in the Central Bank’s report are the result of several recent public inquiries, including Public Consultation No. 86/2021 which included a proposal with a view to establishing requirements for the disclosure of information on social, environmental and climate aspects applicable to institutions included in Central Bank Resolution No. 4,553 of 2017, and aims to bring greater understanding of these climate, environmental and social risks by financial institutions and other participants in the financial system. The goal is to promote transparency, the availability of credit and sustainable finance.

According to the Central Bank´s president Roberto Campos Neto, central banks around the world need to assess the vulnerabilities of the financial system in relation to these risks that can cause changes in the valuation of assets and losses for the system. Mr. Campos Neto also indicated that the Central Bank has implemented measures to promote sustainability. Those measures include, among others, promoting sustainable finance, adequate management of socio-environmental and climate risks and the integration of sustainability considerations in the Central Bank's decision-making process.

These norms deal primarily with the strengthening of the rules for managing these risks by the institutions of the National Financial System (Sistema Financeiro Nacional, SFN) with the requirement for the creation of a Social, Environmental and Climatic Responsibility Policy (PRSAC). In addition, the regulations standardize the disclosure required of institutions that are part of the SFN with respect to information on social, environmental and climate risks and opportunities, thereby increasing transparency.

In addition to the Central Bank’s report, other similar initiatives are being undertaken by governmental entities in Brazil, such as the one recently announced by the National Bank for Economic and Social Development (BNDES) pursuant to which it indicated that it will offer more favourable financing conditions to Brazilian companies that assume and meet targets for the advancement of environmental, social and governance (ESG) performance.

Another important ESG initiative being promoted by the Brazilian federal government relates to establishing and promoting a voluntary carbon market. The Brazilian Ministry of the Environment published Resolution No. 518/2020 which instituted the Floresta + Carbono modality for the voluntary carbon market in the country and which, recently with the adoption of Article 6 of the Paris Agreement (COP26), can be understood as a market independent of the respective governments of the countries. As a result, there would no longer be a need for the voluntary carbon market to be accounted for in Brazil’s decarbonization targets, the so-called NDCs (Nationally Determined Contributions), thereby allowing for a more fluid and less bureaucratic process by limiting governmental involvement in the transactions between market participants.

A voluntary carbon market allows companies that emit carbon to offset their emissions by purchasing and trading carbon credits, regardless of whether such companies are bound by a legal obligation to reduce greenhouse gas emissions. While Brazil's voluntary carbon market is in its early stages, a number of companies have already accessed the market, data released recently by the Ecosystem Marketplace provides that in the first eight months of 2021, the value transacted in voluntary carbon markets grew 60% compared to the full year 2020 and should surpass the US$ 1 billion in 2021.