At the UK Green Finance Summit in São Paolo on April 26th, Marcelo Seraphim, UNEP FI/PRI Senior Policy Consultant, stressed the importance of a broad adoption of stewardship codes by the Brazilian financial market. This is in line with the recommendations set out in the report Fiduciary Duty in the 21st Century and with the deliverables proposed in the Brazil Roadmap’s action plan.
The British Diplomatic Mission in Brazil invited the Lord Mayor of the City of London and his entourage to convene with Brazilian authorities, investors’ associations, regulators and consultants to discuss the future of Green Finance in the country. Participants highlighted the huge opportunities for green investments and the challenges yet to be tackled to prepare the country for receiving long term investments. Improving the country’s business environment to make it more attractive to green investments is key. This increases the urgency for implementing practices that contribute to raising the awareness on the importance of environmental, social, and governance (ESG) issues among investors and regulators.
Aligned with these objectives, UNEP FI and the PRI led the panel “Best Practices and Stewardship Codes”, with the participation of Fernando Tendolini, Vice President of the Association of Capital Markets Investors (AMEC); Daniel Maeda, Superintendent of Investors Relations at the Brazilian Securities Exchange Commission (CVM); Fabio Coelho, President of the National Superintendence for Closed Pension Funds (PREVIC); Paulo Pereira, investment manager at FUNCESP and Ivan Clark, Risk & Quality Regulatory Partner at PwC. The panelists discussed the benefits and challenges of the adoption of stewardship and governance codes, highlighting the contribution of AMEC’s stewardship code on helping signatories to improve their investments practices in Brazil.
The AMEC’s stewardship code, launched in 2016, comprises a list of principles that should guide investors’ behaviors in their professional activities. The code emphasizes the importance of investors’ compliance with their fiduciary duty and, more importantly, provides guidance on issues such as managing conflict of interest, taking ESG factors into account in investment decisions, being diligent and active in the exercise of voting rights, establishing collective engagement, and being transparent in their stewardship activities.
One of the recommendations of the Fiduciary Duty in the 21st Century project was that the Brazilian financial market should adopt the AMEC’s stewardship code as a tool to foster the responsible investments practices in the country. In addition, UNEP FI and the PRI recommended that CVM formally adopted the code, incorporating it into its legal framework. In fact, CVM has recently included the Brazilian Code of Corporate Governance as part of the norm that governs the issuance of listed companies’ securities. However, CVM’s formal adoption of a broad tool like the AMEC’s stewardship code would require a market maturity that is not yet reflected in the small number of the code’s signatories. Nevertheless, CVM recognizes the importance of having such market-driven initiatives to improve investments governance and supports the adoption of the code by the market.
The experts also talked about the contribution of the financial market regulators to the achievement of the country’s long-term sustainability goals. The discussions clarified that adopting a “comply or explain” approach in the regulatory framework will help investors’ improve the transparency on their decision making process regarding ESG issues. On the other hand, this disclosure procedure will not impose significant reporting burden to the supervised entities. In addition, disclosing the drivers that underpin the investors’ portfolio management decisions must be understood as part of their fiduciary duty.
A comprehensive adoption of stewardship and governance codes together with the regulators’ interaction with and support to these market-driven instruments will help scale up the benefits expected with the regulatory improvements that are in progress in Brazil. The successful implementation of these actions is key to help Brazil achieve its sustainability goals and increase the awareness of responsible investment practices in the country.
Learn more about Fiduciary Duty in the 21st Century here.