The growing concern about climate change and the intensification of discussions on the subject are increasingly impacting the country, both in the proposition of new standards involving environmental issues and in the enforcement of existing provisions. In addition, there is a constant demand for strengthening environmental by stakeholders, mainly with regard to the disclosure of information relating to the impacts of companies’ activities on climate issues.

According to the report United in Science 2021, published by the World Meteorological Organization (WMO), the period between 2011 and 2020 was considered the warmest ever to be disclosed in the reports. The Secretary-General of the United Nations (UN) also recently emphasized the urgent need to reduce air emissions and actions to protect world population from the negative effects of climate change. This increases the pressure on the various sectors of society to strengthen their sustainable policies in order to reduce the global risks that such changes may provoke. Such idea is even more relevant considering the rise of initiatives related to the adoption of concrete measures derived from ESG policies (environmental, social and governance).

In 2020, for example, there was the proposition of Bill No. 3,961/20 (PL), which, if approved, would place Brazil in a state of climate emergency, until the situation is circumvented and actions to reduce the impact of human activity on climate are no longer urgent.

Among the devices proposed in the PL, the following stand out:

  • prohibition of relocation by the Brazilian government, during the emergency situation, of budgetary resources intended for environmental protection, the fight against deforestation and the reversal of climate change for other purposes;
  • preparation of the National Plan for Response to Climate Emergency; and
  • conclusion of the complete transition to a sustainable and carbon-neutral socio-environmental economy model by 2050.

The PL is in progress before the Chamber of Deputies and currently awaits the opinion of the rapporteur in the Committee on Environment and Sustainable Development, which will be decisive for the evolution of discussions on the subject in the house.

Although the PL is a very relevant innovation regarding climate change, the theme is already regulated, at the federal level, by Federal Law No. 12,187/09 (National Climate Change Policy - PNMC) and Federal Decree No. 7,390/10. Both provisions regulate Brazil's commitment to the United Nations Framework Convention on Climate Change to reduce greenhouse gas emissions. However, although it has been an important step towards regulating climate issues, the PNMC still demands additional standardization for effective structuring of climate governance. It is necessary to establish instruments for the country to implement mitigation and adaptation actions and means for their enforcement as provided for in Nationally Determined Contributions (NDCs).

Also at the federal level, the Central Bank of Brazil (BCB) has recently published several acts that detail and strengthen existing regulations on the management and disclosure of climate risks applicable to financial institutions. One example is Resolution of the National Monetary Council (CMN) No. 4,943/21, which sets forth obligations for financial institutions to identify, measure, evaluate, monitor, report, control and mitigate the adverse effects of climate change relating to their activities. To implement such climate risk management measures,[1] institutions should adopt, in summary, mechanisms to identify and monitor the risks arising from their products, services, activities or processes, as well as their suppliers and controlled entities.

Another interesting innovation brought by the resolution is the obligation to identify, in a timely manner, possible political, legal, regulatory, technological or market changes, including significant changes in consumption preferences, which may significantly affect the climate risk incurred by the institution, and to inform which procedures can be adopted to mitigate it.

BCB Resolution No. 139/21, in turn, provides for the disclosure of the Social, Environmental and Climate Risks and Opportunities Report, allowing the investor to analyze, in an integrated manner, and based on the same criteria, risks and business opportunities offered by each institution.

Regulations on the subject may be considered incipient, but we have seen very innovative decisions by the courts, which have been incorporating legal guidelines related to climate issues into their decisions. An example is the recent decision rendered in the context of a public civil action[2] filed by institutions and associations representing the residents of the Municipality of Nova Seival[3], in the State of Rio Grande do Sul. The Court determined, on August 31, 2021, that the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) shall include analyses related to climate change in the Reference Terms (TRs)[4] that support the environmental licensing procedure of thermal power plants located in the state of Rio Grande do Sul.

In the referred case, the associations discuss the validity of the environmental licensing of a project involving the construction of the largest thermal power plant in the state, based on allegations that the federal environmental agency responsible for licensing, IBAMA, would have failed to provide the necessary publicity to public hearings that would be held as a requirement for issuance of the environmental license of the enterprise, and that there were gaps in the Environmental Impact Study (EIA) and its Environmental Impact Report (RIMA) (together EIA/RIMA) presented by the entrepreneur to support the environmental licensing. These flaws, in the associations' view, should be addressed in so that the licensing process could progress. Amongst the gaps pointed out by the authors of the action, we highlight the absence of a Health Impact Assessment (HIA) and information on the contribution of greenhouse gas emissions arising from the operation of the plant, as well as an analysis of its impact regarding the achievement of the Brazilian goals undertaken in the Paris Agreement.[5]

Based on the technical opinions submitted by the associations, the Court stated that the activity would present relevant risks to the environment and to the region’s community. Thus, based on provisions of the PNMC and State Law No. 13,594/10, which created the Gaucho Policy on Climate Change, the judge determined that the TRs involving environmental licensing of thermal power plants include guidelines on climate change, mainly with regard to the need of conducting a strategic environmental assessment, in accordance with art. 9 of the state law in question, and the inclusion of an analysis of the risks posed to human health.

Thus, even if there is still a long way to go, the progressive increase in initiatives is noticeable, including judicial claims, regarding climate risks and their respective management. They are mainly driven by the growing discussion on the subject and the eagerness for the incorporation of ESG criteria in the corporate and regulatory spheres.

 


[1] CMN Resolution No. 4943/2021 defines climate risk, in its transition risk and physical risk aspects, as:

"I. Climate risk of transition: the possibility of losses to the institution caused by events associated with the transition process to a low-carbon economy, in which greenhouse gas emissions are reduced or compensated and the natural mechanisms for capturing these gases are preserved; and

II - Physical climatic risk: possibility of occurrence of losses to the institution caused by events associated with frequent and severe weather or long-term environmental changes, which may be related to changes in weather patterns."

[2] Public Civil Action No. 5030786-95.2021.4.04.7100/RS, filed before the 9th Federal Court of Porto Alegre - Judicial Section of Rio Grande do Sul.

[3] The institutions and associations are: Gaucho Association for the Protection of the Natural Environment (Agapan); Gaucho Institute of Environmental Studies (Ingá); Preserve Institute; Cooperativa Agroecológica Nacional Terra e Vida Ltda. (Coonaterra-Bionatur); and Center for Popular Education and Agroecology (Ceppa).

[4] The TR is the document issued by the licensing authority, in which methodological guidelines are indicated to orientate the preparation of the EIA/Rima. The EIA/Rima is necessary to evaluate the environmental feasibility of projects with significant polluting potential. We highlight the need to include in the EIA/RIMA the indication of which measures will be implemented to eliminate, mitigate or compensate for the negative impacts arising from the operation of the enterprise.

[5] All signatory countries to the agreement have assumed the obligation to submit NDCs, which can be defined briefly as voluntary commitments to collaborate with the global goal of reducing atmospheric emissions to mitigate the effects of climate change. The Brazilian government presented its new NDCs by 2020 and has committed to reducing domestic greenhouse gas emissions by 37% by 2025 and by 43% by 2030, in addition to neutralizing them by 2060. More recently, during the Climate Leaders Summit, Brazil indicated that climate neutrality would be achieved by 2050.