Brazilian Receivables Investment Funds (Fundos de Investimento em Direitos Creditórios – FIDCs) that allocate capital to transactions with environmental, social, and governance (ESG) impact potential are steadily gaining ground in Brazil, within a broader FIDC industry that now exceeds BRL 630 billion [USD 110 billion] in net assets.
Pursuant to Resolution No. 175, issued by the Brazilian Securities and Exchange Commission (CVM), and regulation by self-market regulator ANBIMA, ESG-oriented FIDCs are categorized as either sustainable investment FIDCs (“FIDC IS”) or “FIDCs that Integrate ESG Factors”.
Below are 6 key considerations for asset managers and investors interested in ESG FIDCs:
1. What is the Brazilian ESG-Oriented Fund “FIDC IS”? According to CVM Resolution No. 175, a “FIDC IS”, or sustainable investiment FIDC, is one that expressly aims to generate environmental and/or social benefits through its investment policy.
2. What is the Brazilian ESG-Oriented Fund “FIDC that Integrates ESG factors”? This category of FIDC incorporates ESG factors into its portfolio management process but does not have the express purpose of achieving ESG-related outcomes.
This type of FIDC must: (i) include the expression “FIDC that integrates ESG factors” in its marketing materials and in the Fund’s bylaws (Regulamento); and (ii) must not include terms such as “ESG”, “ASG”, “environmental”, “green”, “social”, “sustainable”, or any similar expressions in its name.
3. What Are the Key Provisions Required in the Bylaws (Regulamento) of a “FIDC IS”? The bylaws (regulamento) of a “FIDC IS” must include, among other provisions: (i) a sustainable investment objective, with a description of the intended ESG benefits and how the investment policy seeks to generate them; (ii) eligibility criteria for credit receivables, demonstrating alignment with the Fund’s sustainable objective; and (iii) a hyperlink providing access to the ESG methodology form.
4. What Are the Key Provisions Required in the Bylaws (Regulamento) of a “FIDC that Integrates ESG Factors”? The bylaws (regulamento) of a “FIDC that integrates ESG factors” must: (i) expressly state that the fund integrates ESG factors; (ii) set forth eligibility criteria for credit receivables that incorporate ESG considerations; (iii) demonstrate that the portfolio is aligned with ESG guidelines; and (iv) evidence compliance with the Fund’s internal principles and control mechanisms.
5. What Compliance Requirements Apply to Fund Managers of “FIDC IS”? Fund Managers of “FIDC IS” must: (i) maintain an organizational structure compatible with ESG governance and decision-making processes; (ii) have a formal written commitment outlining the ESG-related policies, procedures, criteria, and internal controls adopted for sustainable investing and/or ESG integration; (iii) provide ESG-related metrics and/or indicators to measure progress toward investment objectives; and (iv) submit ESG reporting to ANBIMA, when applicable.
6. What Compliance Requirements Apply to Fund Managers of “FIDCs that Integrate ESG Factors”? Managers of these FIDCs must: (i) expressly state in the Fund’s bylaws that ESG factors are integrated, along with the corresponding credit receivables eligibility criteria; (ii) ensure consistency between the bylaws, disclosure materials, and internal practices; (iii) publish on their website an updated report, at intervals not exceeding 24 months, describing how ESG factors are considered in fund management and how the portfolio aligns with the adopted guidelines; and (iv) maintain governance structures and internal controls aligned with the integration approach.
Although “FIDCs that integrate ESG factors” are not required to submit reports to ANBIMA (unlike “FIDC IS”), it is recommended that managers keep organized and verifiable records regarding the implementation of the stated strategy to facilitate regulatory oversight and investor transparency.
With the ESG FIDC market expanding, compliance with the regulatory requirements applicable to both “FIDC IS” and “FIDCs that integrate ESG factors” is essential for managers seeking to seize opportunities in this segment and remain aligned with CVM, ANBIMA, and broader stakeholder expectations.
