The sustainability report is the document in which a company shows how it affects the environment and society and how it is governed.While the financial statements answer "how much money did the company make?", the sustainability report answers "how does the company generate that money, what impacts does it cause and which environmental, social and governance risks could affect its results?".Why does the sustainability report exist?For a long time, companies were judged almost solely on profit, equity and cash generation. But investors realised that two companies with the same profit can carry completely different risks.For example: Company A has a profit of R$ 1 billion (Brazilian reais), emits a lot of carbon and has a history of environmental accidents; Company B has the same R$ 1 billion profit, controlled emissions and a low accident rate. In the DRE (Demonstração do Resultado do Exercício, the Brazilian income statement), the two look identical. The sustainability report shows that they are not: Company A is more exposed to fines, compensation claims, new carbon rules and loss of reputation.Two companies each make a profit of R$ 1 billion; Company A emits a lot of carbon and has a history of environmental accidents, Company B does not. What does this comparison show?Answer: The DRE does not capture risks that may reduce A's future profit, such as fines, compensation claims and new carbon rules — the DRE shows the result for the period, not risks that have not yet become expenses. The last option is tempting, but the sustainability report is a separate document and does not change the DRE.The ESG concept (ASG in Portuguese)Today these reports usually follow the ESG logic: Environmental, Social and Governance. In Brazil the Portuguese acronym ASG (Ambiental, Social e Governança) is also used.Environmental pillar (E)Shows the company's impact on the environment. Examples: greenhouse gas emissions (measured in tonnes of CO₂ equivalent); water consumption; waste generation and disposal; spills; use of renewable energy; recovery of degraded areas.An oil company such as Petrobras, for example, discloses indicators typical of its sector: tonnes of CO₂ equivalent emitted, oil leaks, energy consumption and emissions intensity (emissions per barrel produced).Social pillar (S)Shows how the company relates to people: employees, customers, suppliers and communities.Common indicators are number of employees, diversity, share of women, workplace accidents, training hours and social investment. A report might state, for example, that women hold 38% of leadership positions or that the company delivered 500,000 hours of training in the year.Governance pillar (G)Shows how the company is run: composition of the board of directors, independence of board members, auditing, anti-corruption, ethics and transparency.This is where the reader finds out whether there is an independent audit, whether there are independent board members and whether there have been recent scandals or investigations.A report discloses the proportion of independent members on the board of directors. Which ESG pillar does this indicator belong to?Answer: Governance — board composition and independence describe how the company is run. Social is tempting because it involves people, but the S pillar covers relations with employees, customers, suppliers and communities.Difference from the DVAThe DVA (Demonstração do Valor Adicionado, the Brazilian statement of value added) shows how the wealth generated was distributed among employees, government, lenders and shareholders. The sustainability report shows how that wealth was generated and what impacts generating it caused. The DVA is a financial statement, mandatory for Brazilian listed companies; the sustainability report is a separate report with its own rules.What do investors look at?Carbon emissionsInvestors want to know whether the company is prepared for the energy transition: how much it emits, whether it has reduction targets and what it would cost if carbon were taxed.Operational accidentsA company may have high profits, but if it records explosions, spills and deaths, it carries a risk that has not yet shown up in its results.LawsuitsThe report usually shows environmental fines, contingencies and conflicts with communities.Human capitalSome investors track staff turnover, training and talent retention.DiversityInternational funds often analyse the presence of women in leadership positions, racial diversity and inclusion policies.Unusual situations that draw attentionProfit rising and emissions risingMay indicate unsustainable expansion and future regulatory risk.Few accidents and many lawsuitsMay indicate problems that are not being recorded.Excellent ESG and weak profitSometimes the company invests heavily in sustainability but does not yet generate an adequate economic return.Poor ESG and high profitIt may look great in the short term, but it can lead to fines, regulatory restrictions and loss of reputation.Over three years, a mining company's profit doubled and its greenhouse gas emissions also doubled, with no reduction targets. What is the most prudent reading?Answer: Unsustainable expansion, with regulatory risk and future carbon costs — growing while emitting ever more leaves the company exposed to carbon taxes, fines and restrictions. It is not greenwashing: greenwashing means looking more sustainable than you are, and here the bad numbers are in plain sight.Criticism of the sustainability reportNot everything is perfect. One of the biggest problems is so-called greenwashing: the company tries to look more sustainable than it really is.For example, it highlights small environmental actions and leaves out relevant problems.That is why investors look at quantitative indicators, check whether the report has received assurance (a review by an independent auditor) and compare the figures with those of previous years.The standards used in the reportReports are becoming more and more like financial statements: figures, targets, year-on-year comparison and review by an auditor. Here is an example of a Petrobras sustainability report.To make the data comparable between companies, reports follow international standards. The main ones are:GRI (Global Reporting Initiative): the most widely used standard in the world. It focuses on the company's impacts on the economy, the environment and people (so-called impact materiality). It is now organised as the GRI Standards, whose universal standards were revised in 2021.ISSB (International Sustainability Standards Board): a board created in 2021 by the IFRS Foundation, the same body that oversees international accounting standards. In June 2023 it published IFRS S1 (general requirements) and IFRS S2 (climate). Its focus is the investor: which sustainability risks and opportunities could affect the company's cash flows, results and value (financial materiality).SASB: industry-specific standards that, since 2022, have been maintained by the ISSB itself and serve as a reference for applying IFRS S1.GRI and ISSB do not compete: many companies use both, because they answer different questions (the company's impact on the world and the world's impact on the company).An investor wants to know how a prolonged drought could affect the cash flow and value of a food company. Which standard was designed for this question?Answer: ISSB's IFRS S1 and S2, focused on financial materiality — the ISSB looks at the effect of sustainability matters on the company and the investor. GRI is the trap: it looks the other way, at the company's impact on the economy, the environment and people.The rule in BrazilIn Brazil, the ISSB standards were brought in by the CBPS (Comitê Brasileiro de Pronunciamentos de Sustentabilidade, the Brazilian Sustainability Standards Committee), created by the Federal Accounting Council. Pronouncements CBPS 01 (equivalent to IFRS S1) and CBPS 02 (equivalent to IFRS S2) were approved by the CVM (Comissão de Valores Mobiliários, Brazil's securities regulator) in October 2024.The path to mandatory reporting changed more than once:RuleWhat it establishedCVM Resolution 193/2023Voluntary adoption of the ISSB-based report from the 2024 financial years, and mandatory for listed companies from financial years beginning on 1 January 2026.CVM Resolutions 217 and 218/2024Approved CBPS 01 and CBPS 02 as the standards to follow.CVM Resolution 244/2026 (29 May 2026)Revoked the obligation before it took effect: the report became voluntary, including for the 2026 financial years.How the rule stands today:A listed company that chooses to report follows CBPS 01 and CBPS 02, explicitly states its compliance with these standards, files the report with the CVM and has it assured by an independent auditor.A company that starts reporting must keep doing so for at least three consecutive financial years; to stop, it must notify the market one financial year in advance.From 1 January 2027, a listed company that chooses not to file the report must explain its reasons in a market announcement by the date it files its annual financial statements. This is the "comply or explain" model.In other words, the ISSB-based report is not mandatory, but not producing it now requires a public justification. Outside this report, many companies continue to publish GRI-based reports of their own accord, with no legal requirement.In 2027, a Brazilian listed company decides not to file an ISSB-based sustainability report. Under CVM Resolution 193, as amended by CVM Resolution 244/2026, what must it do?Answer: Explain its reasons in a market announcement by the date it files its annual financial statements — from 1 January 2027 the comply or explain model applies. Nothing is the tempting answer, because the report is no longer mandatory, but not producing it requires a public justification.What does an experienced investor look for?They usually cross-check the information:ReportQuestionDRE (income statement)How much profit did it make?Cash flow statementDid it generate cash?Balance sheetIs it healthy?DVA (statement of value added)Who received the wealth?SustainabilityWhat environmental, social and governance risks exist?That is why the sustainability report does not replace the financial statements. It complements the analysis, helping to answer whether the company's results are sustainable in the long term and what risks may affect its future profits.Exercises1) (CESGRANRIO - 2023 - Transpetro - Higher-Level Transpetro Professional - Junior: Emphasis 1: Administration) The most widely used sustainability reporting standard in the world is that of the GRI (Global Reporting Initiative), whose objective is to spread among organisations the practice of measuring their performance in environmental, social and economic terms, disclosing the results as a form of accountability to society.The guidelines for preparing sustainability reports proposed by the GRI are made up of two categories of principles, which are:A) principles for profit distribution and principles for defining investment allocation.B) principles for preserving the organisation's image and principles for complying with the law.C) principles for ensuring the organisation's profitability and principles for handling crises.D) principles for controlling the organisation's advertising and principles for presenting results.E) principles for defining report content and principles for ensuring the quality of information.2) (FGV - 2015 - CODEMIG - Corporate Accountant) The managers of Ômicron S.A. wish to publish, together, the management report, the financial statements and the company's sustainability report in the newspaper with the largest circulation in the municipality where it is headquartered. According to accounting practices adopted in Brazil, the company must:A) adopt consistent recognition, measurement and disclosure criteria between the financial statements and the other reports;B) clearly identify the financial statements and distinguish them from the other reports;C) cover the same period of time as the financial statements in the other reports;D) state that the financial statements and the other reports comply with the accounting practices adopted in Brazil;E) disclose its financial statements in a document separate from the other reports.Answer key1) E. The split into content principles and quality principles comes from the GRI G3 and G4 guidelines, on which the question is based. In the current GRI Standards (2021 revision) this split no longer exists: there is a single list of eight principles (accuracy, balance, clarity, comparability, completeness, sustainability context, timeliness and verifiability).2) B. CPC 26 (the Brazilian pronouncement on presentation of financial statements, equivalent to IAS 1) requires the financial statements to be clearly identified and distinguished from other information published in the same document.
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