>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUSTAINABILITY A Bloomberg Professional Service Offering ESG DISCLOSURE IN BRAZIL: STATE OF THE MARKET EXECUTIVE SUMMARY In 2014 and 2015, investor inquiries about corporate - The minimum Bloomberg Governance Disclosure Score for governance, company exposure to extreme water the group increased 18 points since 2010, partially driven stress, corporate health and safety performance and by the governance disclosure requirements of the Reference SITAWI is a Brazil-based organization working to advance social environmental, social and governance (ESG) reporting Form, a regulatory filing required by Brazil’s Securities and and environmental outcomes through finance and investing. SITAWI in Brazil more broadly increased dramatically. With Exchange Commission (CVM). major controversies on multiple fronts – the Petrobras/ - The distribution of the ESG Disclosure Score by market cap manages philanthropic funds for large donors, develops financial Lava Jato corruption scandals, the drought in São Paulo shows that larger companies are more transparent. This is solutions to social enterprises and advises financial institutions and state and the catastrophic collapse of Samarco’s mine consistent with global reporting trends. tailings dam – investors, both domestic and foreign, investors on integrating ESG issues into strategy, risk management - The Materials, Consumer Staples and Utilities sectors are the started to more actively consider the potential for leaders in disclosure of emissions and energy use, while the and investment analysis. With offices in Rio de Janeiro and analysis of this type of information as a window into laggards are Consumer Discretionary and Energy sectors. fundamental company analysis and risk management. São Paulo, but operating across Latin America, SITAWI works - The level of disclosure of water use is low and has not with the region’s leading players in social and sustainable finance, In response, Bloomberg conducted a full review of its ESG improved over time. Given the severe water crisis in Brazil data coverage of the Brazilian market, which consists of the during 2014-2015, investors should monitor for improved and is piloting innovative concepts for the region such as Social main Bovespa Index, and then partnered with SITAWI to water disclosure in coming years. Impact Bonds and Green Bonds. analyze the universe and identify themes relevant for investors - The level of disclosure of waste was also low despite and other stakeholders in the Brazilian market. Reviewing all regulation on waste management. The sectors for which the companies in the universe yielded useful insights into the this issue is more material (Consumer Discretionary, Energy state of ESG reporting in Brazil, especially in relationship to and Materials) report very little on waste management. issues with both long-term relevance and near-term urgency. - The most frequently reported environmental policies are This white paper represents that work and Bloomberg’s Water Policy (81%) and Waste Reduction Policy (79%). commitment to elevating the visibility of sustainable investing and ESG integration into fundamental company analysis. - In contrast with low quantitative reporting on water use, the most water-sensitive sectors, Utilities, Materials and The analysis in this white paper focuses on the level of Energy, were the best Water Policy reporters (89% or disclosure of Brazilian listed companies on ESG issues. It more companies disclosing). investigates the degree of corporate transparency on issues - The Utilities sector’s 50% increase in disclosure of water such as energy intensity, water intensity, carbon footprint, policies from 2010 to 2014 reflects the increasing importance health and safety, and diversity using Bloomberg’s ESG data. of water management to hydroelectric generators. We found overall that increased disclosure since 2010 was - The Consumer Discretionary sector featured a 45% driven by factors such as corporates’ adoption of the GRI increase in disclosure of waste policies in the period and CDP frameworks; the UN Global Compact’s disclosure analysed, which is most likely a result of the 2010 requirements; increased interest from companies to join the National Policy of Solid Waste. Corporate Sustainability Index (ISE) and the Brazilian GHG Protocol Program; and the influence of BM&FBovespa’s - On diversity, the most frequently reported data points are Report or Explain initiative. percentage of women employees (74%) and percentage of disabled employees in the workforce (46%), the latter of The white paper’s main findings are as follows: which is subject to Law 8213/1991 that establishes quotas. - From 2010 to 2014, the median level of ESG disclosure of - In general, the sectors for which health and safety are Ibovespa companies, as measured by Bloomberg’s ESG more material (Consumer Discretionary, Consumer Staples, Disclosure Score increased 20%. Energy and Materials) are not reporting well on accidents - Utilities, Consumer Staples and Materials sector companies and fatalities. showed the highest levels of ESG disclosure, while Energy and - Recent corruption scandals and the new Anti-Corruption Consumer Discretionary illustrated the lowest transparency. Law have driven more disclosure. Business Ethics Policy - Although Bloomberg’s Environmental Disclosure Score is the most frequently reported social policy. Disclosure of among Ibovespa companies increased 36% from 2010 Whistle Blower Policies increased 23% and Anti-Bribery to 2014, only 11% of them feature better than median Ethics Policies 18% between 2013 and 2014. CONTENTS environmental disclosure. - Overall, although regulatory requirements may mandate 02 METHODOLOGY & MARKET BACKGROUND - On the other hand, even though the Social Disclosure Score Brazilian companies to manage environmental and social 03 BLOOMBERG DISCLOSURE SCORES of Ibovespa companies increased only 10% from 2010 to issues, company ESG reporting often does not reflect the 2014, 32% of companies present higher than median social company’s response to those mandates. 07 ENVIRONMENTAL ISSUES disclosure with examples of strong corporate leadership, a 10 SOCIAL ISSUES reflection of the regulatory environment in Brazil on labour 13 APPENDIX 1 and health and safety. 14 APPENDIX 2 15 APPENDIX 3 METHODOLOGY & MARKET BACKGROUND The level of these companies’ ESG disclosure was assessed The sample of this study comprises the 57 Brazilian companies in the Bovespa Index (Ibovespa), the widely used benchmark using company-reported ESG data available on the Bloomberg tracking the Brazilian stock market’s performance. Professional Service over the period 2010-2014. Bloomberg collects sustainability information from more than 11,000 The assessed companies belong to eight different sectors, as shown in Table 1. The majority of the companies are from companies globally and presents executive compensation the Financials (19%), Consumer Discretionary (16%) and Materials (16%) sectors. information for more than 16,000 companies. This information is collected from company reports such as Corporate Social SECTOR % OF SAMPLE # OF COMPANIES COMPANIES Responsibility and Sustainability reports, annual reports, Communications 7% 4 Telecom: Oi*, Telefônica*, Tim* company websites and Bloomberg’s proprietary survey. Media: Smiles Bloomberg standardizes company reported sustainability Consumer 16% 9 Consumer Services: Estacio, Kroton information to make this data more comparable and to improve Discretionary Commercial Services: Qualicorp Retail: Hering, Lojas Americanas*, Lojas Renner*, Localiza comparability across companies, but no company ESG data Home & Office Products1 : MRV*, Cyrela* is estimated. In addition, every data point features transparency Consumer Staples 14% 8 Consumer Products: BRF*, JBS, Marfrig, Natura*, Ambev, Hypermarcas2 to a company document. Retail: Pão de Açúcar*, Raia Drogasil Finally, this paper also highlights ESG disclosure relative Energy 5% 3 Oil, Gas & Coal: Cosan, Ultrapar, Petrobras* to relevant and business material factors by sector. The ESG Disclosure Map — Bloomberg’s ESG Disclosure Score Financials 19% 11 Banking: Banco do Brasil*, Santander*, Bradesco*, Itaú Unibanco* concept of materiality recognizes that certain information is by Country Coverage Insurance: BB Seguridade Institutional Financial Services: BM&FBovespa*, CETIP important to investors in making investment decisions. While Real Estate: BR Malls, Multiplan the legal framework for publicly listed companies to disclose Brazil’s relatively high ESG Disclosure Score reflects the Specialty Finance: Cielo* material information may vary, the analysis in this paper evolution of sustainability information in Brazil, as well as Asset Management: Itausa draws on the following resources to determine the sector an improved enabling environment, thanks to domestic and Industrials 9% 5 Engineering & Construction Services: CCR*, Ecorodovias* materiality of certain reporting themes. These are: international efforts across governments, corporate reporters, Aerospace & Defense: Embraer* Transportation & Logistics: Rumo Logística - Sustainability Accounting Standards Board (SASB) investors and exchanges. The Global Reporting Initiative (GRI) Machinery: WEG* (2016). Materiality MapTM. Available at this link. established a Focal Point in 2007, which stimulated companies Materials 16% 9 Iron & Steel: Vale*, CSN, Gerdau, Usiminas*, Bradespar3 Accessed 21 March 2016. to report according