Brazil's CVM Revokes Mandatory Sustainability Disclosure Requirement in Shift to Comply-or-Explain Framework

Brazil's Securities and Exchange Commission has issued Resolution CVM 244, amending Resolution CVM 193 to remove the mandatory requirement for publicly traded companies to disclose financial information related to sustainability following a voluntary adoption period, shifting to a comply-or-explain model that gives companies flexibility over whether to adopt CBPS and ISSB standards. The main change removes the transition from voluntary to mandatory sustainability disclosure that the original resolution had imposed on listed companies, aligning the regime more closely with the existing framework already applicable to investment funds and securitisation companies, for which no mandatory sustainability reporting requirement existed. Companies that choose to publish sustainability financial information remain required to comply with CBPS and ISSB standards to ensure reliability and comparability, but those that consider adoption inappropriate for their business need only disclose their decision through a market announcement.

 

The Regulatory Change and Its Mechanics

 

The amended resolution eliminates two specific provisions from the original framework that CVM identified as creating barriers to experimental voluntary adoption. The first was a perpetual reporting obligation that required any entity voluntarily adopting sustainability disclosure in a given fiscal year to continue doing so indefinitely, which CVM found discouraged companies from testing the framework without committing permanently. In its place, the new rule requires a minimum of three consecutive fiscal years of sustainability information reporting and an obligation to communicate any decision to discontinue voluntary reporting in the fiscal year prior to the discontinuation, providing a more proportionate commitment structure.

The second change removes the mandatory adoption pathway that would have required companies to shift from voluntary to compulsory sustainability disclosure after an initial experimental period. CVM framed this decision as restoring the necessary respect for the freedom of entities to estimate the expected costs and benefits of their decisions on how to use investor resources. The regulator said the changes aim to preserve the transparency and comparability brought by compliance with accounting standards while giving companies the autonomy to assess whether sustainability disclosure is appropriate for their specific business context.

 

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Implications for Brazilian Capital Markets and ESG Disclosure

 

The CVM decision represents a significant shift in Brazil's approach to sustainability disclosure regulation, moving away from the trajectory toward mandatory reporting that characterised the global regulatory direction over the preceding several years. The retain-or-explain model preserves the quality of disclosures made under CBPS and ISSB standards for those companies that choose to report, while reducing the compliance burden on companies that judge the cost-benefit balance unfavourable. This approach diverges from the European trajectory under CSRD and from ISSB-aligned mandatory frameworks being adopted in Australia, the United Kingdom and other jurisdictions, positioning Brazil as more permissive in its stance toward corporate sustainability disclosure obligations.

For international investors with significant Brazilian market exposure, the shift to a voluntary framework raises questions about the future comparability and coverage of sustainability financial information across the Brazilian listed company universe. Under the original Resolution 193, there was a clear pathway toward consistent mandatory disclosure that would have enabled systematic comparison of sustainability-related financial risks and opportunities across sectors and companies. The comply-or-explain model preserves high-quality disclosure for committed reporters but may result in more patchy coverage as companies weigh the reporting burden against their perception of investor demand.

 

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Outlook for Voluntary Sustainability Reporting in Brazil

 

Whether the comply-or-explain approach will maintain sufficient disclosure coverage to meet the information needs of domestic and international institutional investors will depend on the depth of investor demand for sustainability financial information from Brazilian issuers and the degree to which capital allocation decisions reflect sustainability disclosure quality. If institutional investors, index providers and credit rating agencies consistently reward disclosure quality and penalise non-disclosure through higher cost of capital or exclusion from indices, market incentives may sustain voluntary adoption rates even without mandatory requirements. Conversely, if investor pressure is insufficient to drive adoption, the removal of the mandatory pathway may result in declining sustainability disclosure coverage over time.

The CVM resolution also raises questions about Brazil's positioning in the global sustainable finance ecosystem at a moment when the country is actively promoting itself as a destination for green investment and sustainability-linked capital through programmes such as Eco Invest and its carbon market development agenda. The alignment between voluntary domestic disclosure frameworks and the mandatory reporting expectations of international institutional investors and development finance institutions may become an increasing source of tension as Brazilian companies seek to access sustainability-linked financing from international sources. The next phase of Brazilian sustainability disclosure policy will be defined by how the market responds to the comply-or-explain framework and whether investor pressure proves sufficient to sustain meaningful voluntary adoption rates.

 

 

Source: CVM