ESG mandatory reporting as a diversity and inclusion tool

Viviane de Azevedo Rodrigues
Cescon, Barrieu, Barreto & Flesch Advogados, São Paulo
Viviane.rodrigues@cesconbarrieu.com.br

The 2004 Norwegian standard of implementing quotas for women on boards of directors served as a catalyst for developed markets. However, it took considerable time for these initiatives to extend to Brazil.

In May 2022 the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários or CVM) Resolution 80/2022 came into effect, creating the obligation for listed corporations to disclose their workforce and administration composition in terms of gender identity, race or skin colour, age and other diversity criteria considered relevant for the company, according to the individual’s self-declaration. From January 2025 on, workforce disability status shall also be disclosed in the Reference Forms (Formulário de Referência or FRE), due to amendments to the CVM Resolution 80/2022.

While there has been undeniable progress, the impact of Brazil’s CVM Resolution 80/2022 has primarily been reflected in internal censuses conducted by companies to assess their current workforce composition. However, the implementation of affirmative actions aimed at increasing the participation of underrepresented groups remains a challenge.

Proof of this pattern is the research conducted in 2023 by the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa or IBGC),^[1] showing that among 389 listed corporations in December 2022 – totalling 6,160 surveyed professionals, only 15.2 per cent of officers, board of directors or fiscal council positions were occupied by women.

Although this figure increased by 0.9 per cent when compared to the 2022 study, the improved results do not necessarily represent different women composing these bodies, since some of the women are appointed in more than one position or company (25 per cent of companies have women serving on the board of directors and as an officer at the same time). In many cases, having one token woman in a leadership position is considered enough, the old one-and-done approach. 

The initial regulation marked a significant milestone in terms of transparency and accountability. However, to further advance this topic and prevent mere ‘ESG-washing’, the CVM has taken steps to enhance its regulations.

Similarly to the European Union law obliging at least 40 per cent of women sitting on the boards and the US Securities and Exchange Commission regulations demanding Nasdaq companies to diversify their board members, in July 2023, the CVM approved the new regulation for listed corporations (Regulamento de Emissores), setting specific requirements for board composition and aligning its ESG-related obligations with international practices.

With some exceptions, listed corporations have up to 2025 or 2026 (depending on their listing date) to disclose and evidence their diversity and inclusion practices – or justify the lack of data to report.

Based on the new regulation, the board of directors of listed corporations must be composed of at least (1) one self-declared woman (regardless of her gender attributed at birth), and (2) one self-declared member of an underrepresented group, including black, indigenous or LGBTQI+ individuals, or a person with disabilities. The quota provided in items (1) and (2) cannot be cumulatively met by the hiring of a single individual.

The regulation also determines that (1) the company’s by-laws or policies must indicate ESG-related requirements to appoint its board of directors and officers, including criteria for complementary experiences, and diversity in terms of gender, sexual orientation, colour or race, age group, and people with disabilities; and (2) variable compensation paid to officers is linked to ESG-related performance goals, emphasising the importance of sustainable practices.

While sanctions are not explicitly provided by the norm, the public disclosure of data serves as a powerful tool to hold companies accountable, which, by itself, may stir the pot. New studies are yet to show the results of this CVM effort, but the fact that Brazil is following this international trend gives stakeholders high hopes.

Recent Brazilian labour legislation has taken steps to address ESG issues in non-listed corporations. As of April 2023, companies are now required to disclose the self-declared race or ethnicity of their workforce – considering options such as white, black, Asian and indigenous – on the employment-related records. The information gathered will be used to feed the National Policy for the Promotion of Racial Equality, focused on black and brown populations, who often hold lower-paying positions and face workplace inequities.

In addition, in July and November 2023, companies with more than 100 employees became obligated to provide workforce and salary parity information to the Labor Ministry, including its division on gender and race, and the existence of policies related to the support of parenting, advancement of women’s careers and the promotion of LGBTQI+ individuals in the workplace. Although these policies were suggested by laws enacted in 2022, their non-binding nature has led to limited adoption by employers.

The first data gathered in the aggregate Labor Ministry Salary Equity Report^[2] (‘the Report’) confirms what was already known to all: women earn 19.4 per cent less than men in general, but in managerial positions, this gap reaches 25.2 per cent. When race is considered in the equation, the data demonstrates that black women occupy fewer positions in the formal labour market and earn 49.7 per cent less than white women.    

Other insightful data extracted from the Report shows that only 38.3 per cent of the surveyed companies adopt policies to promote women to management and officer positions. 32.6 per cent have policies to promote specifically the hiring of women, and 26.4 per cent adopt incentives for hiring black women.

The 2022 Brazilian Census, conducted by the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística or IBGE),^[3] revealed that women constitute 51.5 per cent of the Brazilian population. Consequently, the Labor Ministry Salary Parity Report and the IBGC study underscore how far behind Brazilian companies are in terms of gender diversity and inclusion (not to mention other diversity aspects and intersections).

Mere disclosure is just the first step, the real impact lies in implementing affirmative actions that lead to meaningful representation of underrepresented groups. Stakeholders can leverage this data to design targeted policies that address the needs of underrepresented workers.

As a 2018 calibration exercise conducted by the International Monetary Fund^[4] suggests, closing the gender gap could increase gross domestic product (GDP) by an average of 35 per cent, and one-fifth of the gains come directly from the gender diversity effect on productivity.

Brazilian companies should view ESG standards not merely as a reporting requirement but as a powerful tool for fostering diversity and inclusion. It is time that they embrace this overdue shift.