This chapter first summarises the outline of the report and then provides an overview of the profile of the respondents to the two OECD surveys on practices and approaches on corporate sustainability in Brazil: (1) survey of public companies registered with the Brazilian securities regulator and (2) survey of asset managers investing in Brazil.
Sustainability Policies and Practices for Corporate Governance in Brazil
Corporate Governance
1. Introduction
Abstract
This publication is the output of a joint project involving the OECD and Brazil’s Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) to support the development of capital market regulation related to sustainability risks faced by listed companies. It provides an overview of the main trends and issues related to sustainability and corporate governance in the country and at the global level. Its goal is to support the development of the country’s framework for sustainability disclosure, the responsibilities of company boards and shareholder rights in alignment with the G20/OECD Principles of Corporate Governance (G20/OECD Principles).
The jurisdictions whose frameworks and markets are covered in this report include Brazil, France, India, Mexico, the United States and the United Kingdom. The selection of those countries was based on multiple criteria, including comparable sizes of their economies, diversity of regions and the effectiveness of the existing frameworks in some of those jurisdictions.
This chapter presents the profile of the respondents to the two OECD surveys on practices and approaches on corporate sustainability in Brazil: (1) survey of public companies registered with the Brazilian securities regulator and (2) survey of asset managers investing in Brazil.
Chapter 2 provides an overview of capital market trends and the investor landscape in Brazil. It includes trends in both initial and secondary equity public offerings, as well as activity in primary corporate bond markets. The chapter presents the shareholders of Brazilian listed companies and the ownership concentration at company level. It then offers a summary of recent developments in green bond issuance and Green House Gas (GHG) emissions markets.
Chapter 3 offers an overview of sustainability investing both globally and in Brazil. It includes trends in assets under management and key sustainability matters for institutional investors.
Chapter 4 summarises the most relevant characteristics of existing sustainability reporting frameworks and standards, and analyses their effective use by Brazilian public companies and disclosure preferences of asset managers investing in the country. The chapter then focuses on possible definitions of materiality, and how their advantages and drawbacks may be interpreted in the Brazilian context. It then considers the adoption of mandatory corporate sustainability disclosure and the choice of a single sustainability reporting standard in Brazil. Finally, the chapter analyses in detail data that may guide CVM and other institutions in prioritising which sustainability matters to concentrate their resources on.
Chapter 5 focusses on the quality of corporate disclosure. First, on the assurance of sustainability disclosure globally and in Brazil, and, second, on how sustainability matters may affect disclosure in financial statements and in other existing mandatory filings.
Chapter 6 introduces the key issues related to a corporation’s purpose and to short-termism, and it also discusses the business case for sustainability considerations by the board of directors. The chapter also advances on the discussion about possible definitions of directors’ fiduciary duties.
Chapter 7 assesses data and discussion on different forms of engagement between shareholders and public companies, including dialogue with directors, participation in shareholders’ meetings and litigation. The chapter covers issues that are relevant to the exercise of shareholders rights both in traditional public companies and in companies with a clear mandate to fulfil sustainability goals.
The OECD Surveys on Sustainability Practices in Brazil
The research presented in this report is complemented by the findings from two OECD surveys on practices and views on corporate sustainability in Brazil:
A survey of public companies registered with the Brazilian securities regulator (CVM);
A survey of asset managers investing in Brazil.
While aggregated survey responses are presented in the following chapters as relevant, this section summarises the main characteristics of the respondents in both surveys.
Survey on Sustainability Practices of Public Companies in Brazil
CVM sent an online questionnaire hosted in an OECD webpage to all public companies in its registry in late November 2021 and respondents had until early January 2022 to fill the questionnaire. Most of these companies have listed shares (these are registered in category A), but a small minority is only allowed to make public offerings of debt securities (category B). The questionnaire was available in both English and Portuguese, and respondents were given the option to select their preferred language. The Brazilian Association of Public Companies (ABRASCA) also shared the link to the questionnaire in December 2021 with its associates. The efforts of both CVM and ABRASCA resulted in a high response rate to the survey. Sixty-three public companies with USD 489 billion of market capitalisation as of end 2020 answered to the questionnaire (7 of these do not currently have publicly traded equity).
The respondents’ market capitalisation represented 49.5% of total market capitalisation in Brazil as of end 2020, and the industry distribution of respondents is broadly similar to the one of all public companies in Brazil with some overrepresentation of financials, energy and basic materials industries among respondents (see Figure 1.1 and Figure 2.1) Some bias in the group of respondents may be expected because companies with more advanced sustainability practices may be more prone to answer a survey on sustainability. However, due to the number of respondents and their industry distribution, as well as owing to the support to the survey from widely known institutions (ABRASCA, CVM and OECD), the group of respondents may be considered as representative of all Brazilian public companies.
Companies that answered the survey were divided into two groups. A first group with companies that are included in the most-often used large‑cap index in Brazil (IBOVESPA) and another group with all other companies. IBOVESPA respondents had an average market capitalisation of USD 16.7 billion as of 2020, while the other respondents with listed equity had an average market value of USD 759 million. The segmentation of responses into two groups allows for a more nuanced view of the practices and perspectives according to distinct capabilities to comply with regulations and to answer investors’ demands.
Figure 1.1. Profile of Respondents to the Survey on Sustainability Practices of Public Companies in Brazil
Notes:
1: Seven companies that responded to the survey do not currently have publicly traded equity. However, they are all registered as public companies with CVM and five of them have issued bonds in public markets.
2: IBOVESPA is Brazil’s most-often used large‑cap index, and it included 90 companies in early 2022.
3: Market capitalisation amounts are as of end 2020.
Source: OECD Survey on Sustainability Practices of Public Companies in Brazil, Thomson Reuters Datastream, World Federation of Exchanges.
Survey on Sustainability Practices of Asset Managers Investing in Brazil
As for the survey with investors, CVM sent an online questionnaire hosted in an OECD webpage to all asset managers (“administrador de carteira” in Portuguese) in its registry in late November 2021 and respondents had until early January 2022 to fill the questionnaire. These asset managers include mostly individual investment advisors and investment fund management firms (“gestores” in Portuguese), but also a small minority of administrators (“administrador fiduciário” in Portuguese). The questionnaire was available both in English and in Portuguese, and respondents were given the option to select their preferred language. The Brazilian Financial and Capital Markets Association (ANBIMA) also shared the link to the questionnaire in December 2021 with its associates. Likewise, the OECD contacted 17 asset managers headquartered outside of Brazil whose contact information was publicly available among the 50 asset managers with the biggest equity investments in the country as of end 2020.
The efforts of ANBIMA, CVM and OECD resulted in a very high response rate to the survey with 355 asset managers headquartered in Brazil and eight based abroad answering to the questionnaire. These asset managers declared to have USD 1 010 billion of assets under management (AUM) invested in Brazil in aggregate, including fixed income, alternative investments and equity (USD 981 of AUM for managers based in the country and USD 30 billion for the foreigners). There may be some double‑counting in this total value of AUM because some asset managers may invest in funds managed by others and three respondents (with USD 10 billion of AUM) identified themselves as administrators. In any circumstance, the total AUM of respondents is very close to the USD 1 078 billion AUM of all investment funds managed by firms headquartered in Brazil as of end 2020 as reported by ANBIMA (2022[1]),1 which demonstrates that the group of respondents represents a significant majority of asset managers headquartered in Brazil.
As mentioned in relation to the survey with public companies, some bias in the group of respondents may be expected because asset managers with more advanced sustainability practices may be more prone to answer a survey on sustainability. However, due to the considerably high number of respondents and the value of their AUM, the group of respondents may be considered as representative of all asset managers headquartered in Brazil. Specifically with respect to respondents’ relevance for the public equity market, they had approximately USD 100 billion in equity investments as of end 2020, which represented 10.1% of total market capitalisation in Brazil.
Asset managers that answered to the survey were divided into three groups. Those with more than USD 1 billion of AUM are considered “large”, the “medium” category includes those with AUM between USD 50 million and USD 1 billion, and “small” asset managers are those with less than USD 50 million of AUM. These thresholds were set with the goal of having most asset managers linked to financial conglomerates in the “large” category, and independent asset managers with the scale to invest in sophisticated technologies and human resources in the “medium” category. There are some highly qualified asset managers in the “small” category but it is a reasonable assumption that a majority of these may not have enough resources to analyse large amounts of information and engage with many companies.
Figure 1.2. Profile of Respondents to the Survey on Sustainability Practices of Asset Managers Investing in Brazil
Note: “Large” asset managers are those with more than USD 1 billion of AUM, the “medium” category includes those with AUM between USD 50 million and USD 1 billion, and “small” asset managers are those with less than USD 50 million of AUM.
Source: OECD Survey on Sustainability Practices of Asset Managers Investing in Brazil.
References
[1] ANBIMA (2022), Estatísticas: Fundos de Investimento, https://www.anbima.com.br/pt_br/informar/estatisticas/fundos-de-investimento/fundos-de-investimento.htm (accessed on 15 February 2022).
Note
← 1. The comparison between the AUM of the respondents and the one of the investment fund industry as a whole, while relevant for the goals of this report, is not a perfect one for three reasons. First, OECD survey respondents may have considered assets managed on the basis of a simple mandate without the incorporation of an investment fund (a common practice for small portfolios). Second, respondents include eight managers incorporated abroad with USD 30 billion and six pension funds with USD 3 billion of AUM invested in Brazil. Third, ANBIMA’s assessment includes investments abroad made by funds managed from Brazil, while the OECD questionnaire asked specifically for the “approximate value of the assets under […] management invested in Brazil”.