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Brazilian Central Bank Regulation on Disclosure of Social, Environmental, and Climate-Related Risks

The Brazilian Central Bank has introduced a regulation that requires financial institutions to disclose their risk management practices related to social, environmental, and climate-related risks. This article provides an overview of the regulation’s requirements.

Section 4: Templates

The regulation consists of four templates (G, ER, MEM, and OPO) that require annual disclosure from financial institutions on various aspects of social, environmental, and climate-related risk management.

  • Objective: Describe the management structure for social risk, environmental risk, and climate-related risk.
  • Content: Qualitative information.
  • Frequency: Annual.
  • Description:
    • Identify, assess, and measure social risk, environmental risk, and climate-related risk.
    • Classify exposures to these risks by economic sector, geographic region, and average tenors.
    • Mechanisms for timely identification of political, legal, and regulatory changes affecting climate-related transition risk.
    • Integrated risk management framework tools and systems addressing interactions among social risk, environmental risk, climate-related risk, and other institution-specific risks.
  • Objective: Describe quantitative indicators used in management of social risk, environmental risk, and climate-related risk.
  • Content: Quantitative information.
  • Frequency: Annual.
  • Description:
    • Present indicators linked to classification of risk exposures by economic sector, geographic region, and average tenors.
    • Relevant concentrations of credit risk exposure, as per Resolution CMN 4,557 (2017).
    • Methodologies used to calculate or estimate these indicators.
  • Same as Template ER, but with a focus on management indicators.
  • Objective: Describe business opportunities associated with social, environmental, and climate-related issues.
  • Content: Qualitative information.
  • Frequency: Annual.
  • Description:
    • Governance structure for identifying business opportunities related to these issues.
    • Roles, duties, and responsibilities of decision-making instances involved in this process.
    • Processes and frequency of informing the board and senior management about business opportunities regarding social, environmental, and climate-related issues.

Regulatory Requirements and Implications

The regulation requires financial institutions to disclose information on their risk management practices, including the identification, assessment, and measurement of social, environmental, and climate-related risks. This information will help investors, regulators, and other stakeholders better understand the institution’s risk profile and make informed decisions.