Jun 242014

By Merel van de Mark, BankTrack, 24 June 2014

In April the Brazilian Central Bank launched a new Directive which makes it compulsory for Financial Institutions to implement a Social and Environmental Responsibility Policy, at the latest by the end of July 2015. This policy should contain guidelines and principles to guide the bank’s social-environmental actions with regard to its business and its relationships with stakeholders.

Banco Central do Brasil

Banco Central do Brasil, by Egil Fujikawa Nes for Connection Consulting, licensed under Creative Commons

Though it is an interesting step to force banks to adopt a SER policy, a recent article in Valor argues that the final text is but a watered down version of the draft that was submitted to public consultation in 2012.

The original text specifically mentioned that the SER Policy should cover the socio-environmental impacts of the financial services and products provided by the bank, the suitability of the products and services it offers to the needs of its clients and users, the establishment of a conflict resolution mechanism and the risks and opportunities related to climate change and biodiversity. All of this was taken out.

Furthermore, whereas in the original version stakeholders were encouraged to participate in the implementation of the SER policy, they now are only invited to be part of the elaboration process.

The original text also established objective measurable criteria to evaluate operations, such as sector and regional specific approaches, research into a client’s history, the evaluation of the clients’ socio-environmental management systems and the use of instruments to mitigate socio-environmental risks.

These were all deleted. Instead, a clause stating that banks should observe “principles of relevance and proportionality” in the application of their SER Policy, was introduced.

The directive states that banks should monitor and regularly evaluate the effectiveness of their policies, but they may choose if they wish to actually implement a Social Environmental Responsibility Committee. The obligation to publish a yearly Socio-Environmental Responsibility Report was dropped as was any mention of an independent complaints mechanism.

This Directive is about identifying, mitigating and documenting social and environmental risks, so these risks find their proper place in the overall risk assessment and risk management system of a bank. This is in the interest both of banks themselves and the regulator. However, this directive lacks substantive elements and therefore may not add much to the risk management systems and SER policies already in place with banks. The Brazilian Central Bank would do well to keep options open for a future strengthening of the Directive.

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