ESG reporting in Brazil

­­Basic accounting principles have existed for longer than Brazil has been a country – the growth in global trade throughout history led to the need for stronger financial controls and cash accounting was born. Denise Rodrigues Saboya, Partner and Technical Director, Advisory, Russell Bedford, Brazil comments


s a relatively young country Brazil has known accounting since birth, introducing its first customs system in 1530 and creating the Casa dos Contos (House of Accounting) in 1679 to oversee state revenue and expenditure.

Modern trade means the information businesses produce must meet the needs of different stakeholders who require financial reporting to be accurate and reliable. Further, because different stakeholders have different interests, reporting has evolved into more than accounting information: expanding to cover environmental, social and governance issues (ESG). While accounting reports have been part of the routine for public and private companies in Brazil for a long time, reporting how a business approaches and performs in environmental, social, economic and governance areas has developed only in the last twenty years.

Denise Rodrigues Saboya  
Partner and Technical Director, Advisory, Russell Bedford International

Reporting guidelines

The Global Reporting Initiative (GRI) published the first GRI guidelines in 2000. The International Integrated Reporting Council (IIRC) framework, published in 2013, took things to another level by promoting more efficient and integrated corporate reporting. As well as financial information, the IIRC framework encourages a business to communicate how, in the context of its external environment, its strategy, governance, performance, and prospects help to create and preserve value over the short, medium, and long term.

Some Brazilian companies adopted GRI reporting while others implemented the IIRC Framework. Many embraced a combination of the IIRC framework and the GRI guidelines for ESG reporting. In December 2020, the Brazilian Securities Commission (CVM) published Resolution 14, making it mandatory from 1 January 2021 for public companies to follow the IIRC integrated reporting framework when preparing integrated ESG reports. While disclosing ESG information is still voluntary, where a business chooses to disclose its ESG performance it must follow the IIRC integrated reporting framework. In addition, Resolution 14 requires that the integrated ESG report must be certified by an independent auditor registered with CVM.

Reporting challenges

New opportunities bring gains but also bring challenges. Some Brazilian companies misunderstood the purpose of ESG reporting, disclosing ESG information only as a marketing tool to strengthen their brands. In doing this, they focused only on communicating positive aspects of their ESG performance, forgetting that these reports must satisfy stakeholders’ need for information. This lack of transparency from some companies risked the credibility of all ESG reports and presented a huge challenge for companies, consultants and auditors, that work with clear rules and values.

Another challenge arose from the absence of formal procedures and effective controls for the calculation of ESG performance indicators, primarily relating to environmental information. To enhance the security of information, businesses must manage ESG information systematically with as little human intervention as possible. Unfortunately, automated and integrated management of business processes is mainly the preserve of large businesses; small and medium-sized businesses tend not to have access to these tools. Thus, manual controls will continue to feed reporting inaccuracies.

Investors and reporting frequency

Market analysts have also used ESG reports to make investment decisions. However, businesses tend to produce their ESG reports annually so, depending on the timing of the analysis, the ESG information may be out of date. This can make an ESG report an unsound basis for an investment decision. Therefore, it may be necessary to review ESG reporting frequency to bring it more into line with quarterly reporting of financial and accounting information, deciding what ESG information should be released quarterly, half-yearly or yearly.

Investors' interest in ESG Reports has increased significantly in Brazil and most businesses are aware of the value of disclosing ESG information based on global standards that ensure comparability and measurability. However, stakeholders also need rapid responses in some situations such as environmental disasters. Some businesses in Brazil have been slow (or failed completely) to meet the needs of stakeholders.

Brazil has also experienced intense and negative media coverage of areas such as deforestation of the Amazon rainforest, child labour, forced or compulsory labour, and corruption. ESG reporting can play a big part in enabling Brazilian businesses to demonstrate to their investors, that they are part of the solution, not the problem.

In times of global challenges such as climate change and disparities in income distribution, humanity itself is at stake. Anything that contributes to sustainability, to a better work-life balance, and to the continuity of business is welcome. Brazil can and must contribute to minimising these global impacts and maximising the opportunities. ESG reports are the tool for businesses to communicate their actions in facing up to these global challenges.