Brazil CVM Scraps Mandatory Sustainability Reporting, Introduces Comply-or-Explain System

Brazil's Securities and Exchange Commission has amended its regulation to make ISSB-aligned sustainability and climate reporting voluntary for public companies, replacing the mandatory system that was set to apply from 2026. Companies that choose not to file a sustainability report must publicly justify the decision, and those that do report must comply with CBPS and ISSB standards.

Brazil's CVM had originally mandated sustainability disclosures beginning for fiscal years starting January 1, 2026, aligned with IFRS S1 and S2 standards as adopted by the Brazilian Sustainability Pronouncements Committee. The revised regulation introduces a comply-or-explain mechanism: companies opting out must file a market announcement explaining their decision by the time they submit their annual financial statements in 2027. Companies that choose to report must do so for at least three consecutive years, and must give advance notice before stopping.

Brazil's reversal mirrors regulatory shifts in other jurisdictions where mandatory ESG disclosure requirements have been softened or delayed. The comply-or-explain approach preserves a form of transparency and maintains comparability for companies that do report, while reducing the compliance burden for smaller or less investor-scrutinised public companies. For global investors with exposure to Brazilian equities, the shift creates a less uniform disclosure landscape than mandatory reporting would have provided.

The CVM stated that the changes aim to restore respect for entities' freedom to estimate the costs and benefits of their reporting decisions, while preserving the transparency and comparability that standards-based reporting provides. Brazil's move will be closely watched by other emerging market regulators, including those in India, where mandatory BRSR reporting has been phased in for listed companies. The development illustrates ongoing tension between regulatory ambition and the practical compliance capacity of companies in developing markets.

Key figure — January 1, 2026 original mandatory reporting start date now scrapped