ESG compliance in action in the Brazilian life sciences industry

Renata Fialho de Oliveira
Veirano Advogados, São Paulo
renata.oliveira@veirano.com.br

Luisa Allodi Rossit
Veirano Advogados, São Paulo
luisa.rossit@veirano.com.br

Introduction

The adoption of environmental, social and governance ('ESG') criteria has become an imperative in the global market because, in addition to qualifying part of the world's investments, it has become a factor in the decision-making process of consumers, stakeholders and investors. The discussion about the concept and criteria covered by the term ESG has therefore become relevant for companies regarding determining what measures they should take to meet such criteria, as well as to avoid ESG aspects being reduced to a marketing exercise and amounting to social and greenwashing.

ESG aspects are broad, involving environmental, social and governance factors, and the challenges of meeting them are numerous. From an environmental point of view, the aim is to reduce the impact on the environment (eg, by reducing greenhouse gas emissions, managing and disposing of waste correctly and using water consciously) and promote more sustainable industries. From a social point of view, it is necessary to reflect on social responsibility, respect for human rights and the promotion of diversity, as well as protecting the health of employees and the community, which includes consumers. Finally, governance seeks to structure companies so that they have defined and clear values, and a transparent and ethical decision-making process.

For companies, complying with ESG requirements also means demanding that their supply chain meets these criteria. There are foreign pieces of law and regulation that already provide for this obligation, for example, the French Due Diligence Law (Loi de Vigilance) of 2017, the German Supply Chain Due Diligence Act (Lieferkettengesetz)^[1] and the European Corporate Sustainability Reporting Directive (CSRD),^[2] all of which seek to guarantee the protection of human rights and the environment, the French and German laws by including responsibility for the supply chain for companies, and the European directive by requiring the disclosure of information on their sustainability performance.

ESG in Brazil

Currently, there is no specific legislation in Brazil covering ESG criteria applicable to overall businesses. Up to now, the only standards that create ESG obligations are those specifically related to financial institutions, and which aim to regulate their social, environmental and climate responsibilities. In this regard, the Brazilian Securities Exchange Commission’s Resolution CVM No 193/2023 provides for the disclosure of financial information related to sustainability based on the International Sustainability Standards Board (ISSB). According to this norm, all listed companies and investment funds in Brazil must produce a sustainability report based on the ISSB, starting from the base year of 2026; reporting on information for 2024 to 2025 is voluntary.

For other sectors, there are still no specific standards for reporting ESG information, even though the market demands their disclosure. For this reason, the private sector in Brazil has voluntarily adopted measures set out in international initiatives, such as the ISSB, Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI),^[3] as well as those set out in a national technical standard, ABNT PR 2030. Information on each of these initiatives is detailed below.

ISSB

ISSB was created by the International Financial Reporting Standard (IFRS) Foundation to empower capital market participants with information to support their decision-making process. The ISSB consolidated information and the work of other reporting initiatives, such as the Climate Disclosure Standards Board (CDSB), Task Force for Climate-related Financial Disclosures ('TCFD'),^[4] Value Reporting Foundation’s Integrated Reporting Framework and SASB.^[5]

SASB Standards^[6]

The SASB Standards established guidelines to identify the ESG issues most likely to be financially material for 77 types of industries. In August 2022, the SASB Standards were incorporated by the IFRS Foundation, who announced that it would build the ISSB on the SASB Standards, among others.

GRI^[7]

The GRI aims at helping companies and organisations understand their impact on the economy, the environment and society, including impact related to human rights, in order to increase their accountability and transparency, thereby contributing to sustainable development.

ABNT PR 2030^[8]

ABNT PR 2030 provides recommended practice and guidelines for the incorporation of the ESG concept by Brazilian companies. However, as it is a recommendation issued by the Brazilian Association of Technical Standards (Associação Brasileira de Normas Técnicas or ABNT), it is not a binding document that companies must comply with.

Moreover, it is important to highlight that businesses should comply with norms applicable to matters that may be considered ESG issues. Examples of such include disclosing information about environmental licensing proceedings, waste management, water capture and discharge, use of biodiversity and greenhouse gas emissions, and providing details on compliance with labour and employment legislation, as well as with the respect of human rights. The environmental, social and labour aspects mentioned above are not an exhaustive list of Brazilian legislation on ESG practices but serve as examples of potentially applicable norms to the company’s operations.

ESG in life sciences

When it comes to the life sciences sector specifically, industries must, from a social point of view, not only respect human and labour rights, but also promote the improvement of society's health, diversity in clinical trials and the safety of new drugs and products.

Regarding governance, as it is an extremely regulated sector, life sciences companies should carry out responsible planning and act ethically, especially considering that they are subject to public scrutiny, as some of their issues involve controversial issues, such as animal testing and the development of vaccines using genetically modified organisms.

As far as environmental aspects are concerned, it is important that companies comply with environmental regulations applicable to the sector, two of which are extremely important to the sector: the conservation and sustainable use of biodiversity (eg, for the development of new drugs) and solid waste management (reverse logistics of packaging and drugs). With respect to both these issues, Brazil has developed standards and increased inspections and requirements, as detailed below.

Solid waste

The National Solid Waste Policy (Law No 12.305/2010) established the obligation to structure and implement reverse logistics systems for certain products, after use by the consumer, independently of the urban waste disposal service. One of the systems created through sectoral agreements and terms of commitment signed with the government was the reverse logistics system for medicine, its waste and packaging. The establishment and enforcement of the reverse logistics system for medicine and packaging was necessary, given the degree and extent of the impact on public health and the environment caused by the improper disposal of waste medicine, which are chemical and biological. Under the reverse logistics system, manufacturers and importers must pay for the transportation of medicine from storage points to environmentally appropriate final disposal sites. In addition to reverse logistics, generators of solid waste from health services must draw up Solid Waste Management Plans, indicating all the stages of implementation, operationalisation and monitoring of solid waste management, as well as its final destination.

Biodiversity

Law No 13.123/2015 provides for access to genetic heritage and associated traditional knowledge, and addresses the sharing of benefits for the conservation and sustainable use of biodiversity in Brazilian territory. Companies in the life sciences sector that access the genetic heritage of Brazilian biodiversity or its associated traditional knowledge must comply with the provisions of this law and its regulations. In addition, with the publication of Decree No 11.865/2023, Brazil concluded the process of internalising the Nagoya Protocol, an international treaty whose aim is to promote the equitable and fair sharing of benefits arising from the use of biodiversity at the international level. The internalisation of the treaty has had the effect of making it enforceable in Brazil. However, in order to implement some of the obligations provided for in the Nagoya Protocol, Brazil still needs to regulate some issues in specific, including: (1) the duty to comply with foreign rules on access and benefit sharing for resources and knowledge used on national territory; and (2) the measures that will be adopted in the event of non-compliance with the general duty to comply with foreign rules. In order for the protocol to become an effective instrument for protecting biological diversity and promoting its sustainable use, it is necessary for civil society, as well as researchers, traditional communities and public authorities, to be involved in the creation of new regulations.

Conclusion

Currently, in accordance with globalisation and the demands of the international market, companies are expected to comply with ESG criteria. In Brazil, despite the lack of specific regulations on the ESG criteria that should be observed, companies are generally expected to comply with environmental, labour, compliance and human rights standards; otherwise, they can be held responsible and penalised for non-compliance with specific laws.

In addition, even though there are no regulations in Brazil regarding the reporting of ESG information, in practice, companies have adopted international reports and standards, such as the ISSB. In any case, it is important for companies to follow the evolution of the ESG issue and its regulations, nationally and internationally, because these are constantly evolving and expanding to cover issues that were previously only preliminarily and superficially regulated.

Notes