The Price of Retreat: Why the CVM Needs to Re-instate Mandatory IFRS (ESG) Reporting

In the Brazilian ESG and corporate sustainability mainstream, people are talking about nothing else, and the discussion is not an accident—if only it were.

The recent issuance of CVM Resolution No. 244/2026 (which revoked the mandatory nature of sustainability and climate financial disclosure reports) was not a "mid-course adjustment" or a step toward alleged "qualified transparency," as narratives of convenience attempt to establish in the Brazilian capital market.

Moving away from hasty rhetoric, it was, in reality, a step backward in regulatory governance and Brazil's international leadership. Turning mandatory reporting aligned with IFRS S1 and S2 standards into a voluntary "comply or explain" model is an invitation to greenwashing and legal uncertainty.

By request, I have decided to bring forward some contributory elements to the debate, adding to others I have already made public and which remain open for discussion to advance the topic.

Well. To understand the severity and real motivations behind this retreat, we must examine some of the fragile justifications supporting it and look at the technical and legal facts, as well as the recent and damning assessment by the Supreme Federal Court (STF).

1. The Regulatory Crisis? The STF's Assessment

The regulatory retreat on ESG by the agency was not an act of regulatory sophistication, but an acute symptom of a deep structural issue. In the recent ruling of ADI 7791 (which challenges the calculation rules and the increase in the Securities Market Inspection Fee), Justice Flávio Dino—who had ordered the CVM and the Federal Government to present restructuring measures for the agency—rejected stopgap solutions in a new decision. He was surgical in exposing the "institutional atrophy" and "budgetary suffocation" of the CVM.

According to the Justice, this atrophy creates a "systemic risk" that facilitates the proliferation of fraud and the concealment of information in corporate balance sheets. The implementation of global IFRS S1 and S2 standards requires translating climate risks into rigorously auditable financial impacts. It becomes clear that, rather than exposing its operational inability to supervise this new frontier of global financial risk, the regulator seemingly chose to "legalize" opacity.

2. Empirical Evidence: The "Factory" of Information Asymmetry

The thesis that companies will report their data with high quality spontaneously—or under private demand—clashes with the harsh reality of numbers. The model that the CVM has just restored (where the company "is free" to decide what to detail) was already tested by Resolution 59/2021. The results attest to the clear limitations of the voluntary model.

An important analysis conducted in late 2023 by Sustainable Inclusive Solutions (SIS), focusing on 60 of the most relevant companies on the B3, revealed the information blackout generated by this voluntary approach:

• Hidden Climate Risks: 100% of companies fail to provide a complete description of their physical and transition climate risks.

• Strategic Myopia: 95% do not detail the impacts of climate scenarios on their business.

• Non-existent Governance: 88.3% do not even describe the governance structure for managing these risks.

• Glossed-over Compliance: 86.6% do not describe concrete situations involving effective compliance with environmental regulations.

The SIS study went beyond the Reference Forms (FRE) and also exposed the inefficiency of parallel voluntary reports. Out of the 60 large companies analyzed, 8 did not even have a Sustainability Report, almost all of them operating in high environmental risk sectors. Furthermore, when evaluating the responses given by these companies to the global CDP (Carbon Disclosure Project) questionnaire, the study identified that climate transparency is still very low, with a high rate of unanswered questions or negative responses. In other words, without mandatory status or standardized guidance from the regulator, the market chooses omission and opacity whenever convenient.

As if that weren't enough, a recent study from May 2026, published by the CVM itself, indicated that 73% of investors do not trust the ESG information provided by companies in the Reference Form (FRE). That is, the voluntary, unstandardized model not only conceals risks but completely destroys the credibility of data for those who actually allocate capital.

As Ana Luci Grizzi aptly pointed out, making the disclosure of climate and nature financial risks voluntary does not eliminate the risks; it merely prevents investors and creditors from knowing them. This creates a dangerous information asymmetry—exactly the problem that the CVM, by mandate, is supposed to correct.

Echoing this blackout, the 2026 Corporate Sustainability Panorama (Amcham & Humanizadas), which surveyed 587 executives, brings a reality check on the self-regulation model: in Brazil, 73% of companies do not have or do not update their Materiality Matrix, and 68% do not even publish a Sustainability Report. The math is relentless (except for those who refuse to see it): without the regulatory and institutional force of a mandate and standardization, the market chooses omission.

3. The "Fallacy" of Litigation, the "66 Accesses," and the Escape Clause

Various analyses of the flexibility argue that requiring complex metrics would expose executives to lawsuits over imprecise data. In a recent defense sent to the Capital Reset portal, the CVM attempted to justify its retreat by claiming "low" demand, citing that there were "only 66 accesses" to the ESG section of its Reference Form (FRE). Furthermore, the agency argued that the new flexible model removes permanent obligation, allowing a company to report for three years and then "communicate the option" to stop.

This is a logical inversion and demonstrates a misunderstanding of how global capital operates:

• Investors do not use the FRE: Global institutional investors do not make billion-dollar decisions by clicking on obscure fields on a local regulator's website; they consume structured data via Bloomberg, LSEG, and MSCI terminals, and audited reports. Underestimating global demand based on the CVM portal borders on the anecdotal. Measuring global demand for climate transparency by the low usability of the CVM portal is underestimating the intelligence of the ecosystem.

• The legalization of flight: In the same statement to Capital Reset, the CVM claimed that the new flexible model "encourages voluntary adoption" by removing permanent mandatory reporting. Now, a company can report for three consecutive years and then simply stop, merely by "communicating the choice." In translation: the regulator has just created the perfect "escape clause." If a company's climate risks worsen or its emissions spike, it has institutional approval to turn off the headlights and return to obscurity. It is the legalization of convenience-based transparency. This is ignoring how the financial market operates.

• Omission is the true risk: In the capital market, omitting a material financial risk is an infinitely more serious offense than reporting a good-faith estimate. By making transparency optional, the regulator subsidizes strategic greenwashing, punishing the serious investor and forcing the market to buy assets without knowing their actual climate liabilities.

• The vacuum in risk scrutiny: The OECD report Environmental and Social Impacts Across Industry Sectors categorically proves that the greatest environmental and social impacts and risks are structurally concentrated in specific sectors, such as extractivism (mining, oil and gas), agriculture, and manufacturing. Leaving reporting as "voluntary" allows precisely the sectors with the greatest systemic impact to choose opacity to evade scrutiny.

• The limitations of voluntary action: The CVM’s insistence on the voluntary model ignores international evidence documented in the latest edition of the Carrots & Sticks yearbook (2024). The report highlights that relying solely on corporate goodwill (the so-called "carrot" approach) is insufficient to guarantee the quality, standardization, and timeliness of data required by today's institutional investors. The real fight against greenwashing currently seems to occur only when policies shift to the "stick" of mandatory requirements. There are studies indicating that mandatory ESG disclosure regulations improve the corporate information environment, generating beneficial effects on the capital market and stock liquidity.

• Standardization protects: What generates litigation is the absence of a standard, which fosters heterogeneous, selective, or unverifiable reporting. In corporate law, omitting a material financial risk is an infinitely more serious offense than reporting a good-faith estimate. Adopting a global benchmark, backed by independent auditing, constitutes a corporation's strongest legal shield.

4. The Myth of "Immaturity" and Excessive IFRS Costs

The narrative that the Brazilian market would face "disproportionate costs" and "is not ready" does not hold up against the agency's own database. Questioned about the companies that had already spent millions to adapt to IFRS S1 and S2, the CVM responded that they would be at a "competitive advantage" and that the retreat merely spares the rest from "harmful expenses."

This justification violates the basic principle of the capital market: comparability.

An investor cannot price sectoral risk premiums if only the leader discloses data while its five competitors below choose obscurity. By retreating, the CVM punishes pioneering companies (early adopters) and levels the market downward.

• Punishing the Efficient: Internal CVM research from November 2025 showed that around 70% of publicly traded companies had already begun practical adaptation efforts toward the standards. Retreating does not protect the market; it punishes early adopters, wastes their investments (sunk costs), rewards delay, and drags the market down to the lowest common denominator.

• Guaranteed Proportionality: The rhetoric that the rule would suffocate smaller companies ignores the fact that the CVM had already structured appropriate proportionality, exempting issuers with revenues under R$ 500 million (the FÁCIL Regime under CVM Resolution 232/2025, which is already in effect).

• Mature Global Scenario? The 2025 OECD Global Corporate Sustainability Report demonstrates that independent assurance (external auditing) of ESG data already covers 81% of global market capitalization. And complex Scope 3 emissions? They are already reported by companies representing 76% of global market value. The OECD report further proves that 91% of companies (measured by global market value) already disclose sustainability information. Moreover, the WBCSD's Reporting Matters 2025 report reveals that 83% of global companies already adopt double materiality in their reporting, deeply integrating financial strategy and sustainable impact.

• Is Brazil Ready? The Reporting Matters Brazil 2025 study, conducted by CEBDS, lays bare that Brazil’s corporate vanguard is already operating at a high level: of the companies analyzed, 84% already submit their reports to external auditing and 75% already utilize the double materiality process. Maturity seems to already be a reality at the top tier of our market.

• The Real Bottleneck: The true problem revealed by the 2026 Amcham survey is different: although 87% of companies claim to act on sustainability, only 34% can prove a measurable financial return from this agenda, which is the main barrier pointed out by executives (44%). Mandatory regulation (like IFRS S1 and S2) is exactly the bridge that forces the translation of green discourse into financial data! By retreating, the CVM prevents the pricing of sustainability.

5. Regulatory Short-Circuit: CVM in Direct Opposition to the CMN and Central Bank

While publicly traded companies have gained the right to operate and manage risks "in the dark," the rest of the National Financial System is moving forward.

• IFRS and CMN: The National Monetary Council (CMN), through Resolution 5,185/2024, maintains the obligation for banks, consortia, and insurance companies to measure and report the climate risk of their portfolios starting in 2026.

• Regulatory Short-Circuit: An unsustainable regulatory short-circuit has been created: how will the financial system calculate its systemic exposure if the party taking the capital (the real economy of corporations) has received a free pass from the CVM to omit these very data entirely at their own convenience? The informational connectivity of the financial ecosystem has been imploded.

6. Legal Flaws and the International Bill

The agency's regression does not occur in a vacuum and carries severe legal and international implications, as pointed out by the Institute of Collective Law (IDC) and Sustainable Inclusive Solutions (SIS) in the Public Civil Action lawsuit filed against the CVM:

• Lack of Impact Analysis (RIA): The abrupt revocation bypassed basic governance rituals. It occurred without a Regulatory Impact Analysis (RIA) and without a new public consultation, disregarding fundamental rules of administrative process (LINDB - Law of Introduction to the Rules of Brazilian Law) and violating the principle of protection of legitimate expectations (Art. 30 of LINDB).

• Environmental Regression and Commercial Clauses: The measure violates the constitutional principle of the prohibition of environmental regression (Art. 225). Furthermore, it collides with the non-regression obligations present in the Mercosur-European Union Partnership Agreement and the consistency of flows required by the Paris Agreement. In the midst of our bid to join the OECD, we are signaling deep legal and regulatory instability.

• Opposing Global Capital: While the Brazilian regulator shifts into reverse, official data from the IFRS Foundation confirm that nearly 40 jurisdictions—representing nearly 60% of global GDP—are already adopting or integrating IFRS S1 and S2 standards into their legal or regulatory frameworks. Countries like the United Kingdom, Japan, Australia, Singapore, and even Nigeria are moving forward irreversibly. By retreating, Brazil isolates itself and drives away international capital flows that demand standardized climate transparency.

• Shifting into Reverse on Regulatory Evolution (The "Carrots & Sticks" Effect): The prestigious Carrots & Sticks 2024 global report—which monitors more than 2,600 ESG policies in over 130 countries—attests to a clear movement: as financial markets mature, regulators replace "carrots" (voluntary guidelines) with "sticks" (mandatory requirements). While the international community recognizes the need to tighten regulation to ensure robust data, the CVM decides to regress to the "carrot" phase. By betting on the voluntary model, Brazil isolates itself from the established trend in jurisdictions representing nearly 60% of global GDP, which have already embraced mandatory IFRS standards.

7. The Unison Market Reaction

Anyone who thinks the revocation was unanimously applauded by the productive sector is mistaken. High-caliber technical and financial entities formed a critical bloc against the agency.

In a joint official letter, giants such as IBGC, AMEC, CFC, IBRACON, APIMEC, and FIPECAFI warned that the CVM’s retreat "reintroduces intertemporal and inter-company comparability gaps," weakening the decision-making utility of information and "leaving room for episodes of involuntary or strategic greenwashing." In the same tone, XP Investimentos itself stated in a report that the retreat "represented a step backward in transparency and corporate disclosure related to sustainability."

Conclusion: "Revoking the Revocation" is Urgent

When a regulator subverts its essential mandate—the duty of full disclosure and investor protection—judicialization ceases to be noise and consolidates itself as a legitimate defense of the national ecosystem. As John Elkington reminds us, the phase of measuring sustainability with the "yardstick of rhetoric" is over. The global financial market demands the "yardstick of real risk."

The first step for the current CVM leadership must be the immediate re-discussion of Resolution 244/2026, opening a dialogue with the Ministry of Finance, CMN, and Central Bank to resolve this short-circuit. "Revoking the revocation," restructuring the phase-in model, and cementing the resumption of mandatory reporting for the 2028 fiscal year is the pragmatic path to respect prepared companies, provide adaptation time for others, and restore Brazilian credibility in global capital allocation.

Transforming the STF's diagnosis of atrophy into a restructuring framework is vital for Brazil to leave behind the illusory era of soft sustainability, recover its regulatory leadership, and secure market trust.

And what about you? Do you agree with the view of technical entities and the STF that the CVM needs to regain its strength and governance, or do you believe that the Brazilian market truly needs the 'right to operate in the dark'? Leave your opinion in the comments.

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Originally posted on LinkedIn

Author: Bruno Teixeira Peixoto.