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14 April 2014
The Brazilian financial sector has been awaiting a significant change to its role in national sustainable development since June 2012, when the Central Bank submitted (through a public hearing procedure) a bill of resolution proposing the social and environmental obligations that must be fulfilled by banks and other authorised financial institutions, with regard to their financial operations. Eighteen months later, it is now preparing to enact the bill.
According to the bill of resolution, each authorised financial institution must implement a social-environmental responsibility policy, which must be previously approved by the board of directors and integrated within the company's strategic plans. Among other things, the policy should set out the environmental goals to be pursued by the institution and propose directives to guide financial operations, taking into account the environmental risks, opportunities and impacts that result from any activities that it finances.
Proposals set out by the bill include a request that financial institutions implement and maintain suitable corporate governance practices to ensure that the policy's goals are fulfilled, by adopting procedures, routines and standards that permit the identification, valuation, monitoring and mitigation of environmental risks in financial operations, taking into account the environmental impacts of any activities that the institution finances. In this regard, certain economic sectors (eg, oil and gas, mining, forestry and other ventures with a high environmental impact) should receive special consideration by financial institutions regarding their compliance with environmental standards and regulations.
Once approved, the bill also states that a social-environmental responsibility report should be published annually by financial institutions, demonstrating how the policy objectives have been fulfilled.
Regardless of the Central Bank's intention to regulate financial institutions' social-environmental responsibilities, some already have qualified procedures in place to conduct diligence on environmental information from their financed companies, aiming to fulfil the special corporate governance practices already demanded by the market. These include the Corporate Sustainability Index, controlled by the Equity Exchange, which measures the sustainability of open companies.
On the other hand, some courts have already established, by legal interpretation, that there should be a limit on banks' liability for environmental damage caused by companies that they finance. In Public Prosecutor of Minas Gerais State v Banco Nacional do Desenvolvimento Econômico e Social(1) the Federal Court of the First Region held that financial institutions may be liable only when they ignore or fail to require that the proper documents are provided to account for environmental compliance by their financed agent.
The present scenarios contribute to the endorsement of a new sustainable direction for the global economy, by horizontally internalising social-environmental requirements within the financing chain, and therefore qualifying suppliers that comply with such standards to enter new markets.
For further information on this topic please contact Maria Alice Doria at Doria, Jacobina e Gondinho Advogados by telephone (+55 21 3523 9090), fax (+55 21 3523 9080) or email (email@example.com). The Doria, Jacobina e Gondinho Advogados website can be accessed at www.djga.com.br.
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Maria Alice Doria