What we are seeing in practice
Those who have been applying the Brazilian Sustainable Taxonomy (TSB) to real portfolios are reaching a common conclusion: it is difficult to obtain a positive alignment result. But the difficulty generally does not lie in the activity’s technical criterion. It usually lies in the combination of requirements that must be met and, frequently, in the minimum safeguards applied to the organization as a whole.
This is not a design flaw, but a consequence of a new and ambitious regulatory framework. Decree No. 12,705/2025 already provides for proportionality, cost-effectiveness, gradual implementation and periodic reviews. Our comment to the community is that a moderate adjustment in perspective may prove pragmatic: better defining the scope of each assessment and introducing materiality into some of the safeguards.
A chain in which every link must be “yes”
Under the decree (Article 6), an activity is only considered aligned if it meets three conditions at the same time:
- Contribute substantially to at least one environmental or socioeconomic objective, according to technical criteria defined for each activity.
- Do no significant harm to the other objectives.
- Comply with the minimum safeguards, which are “objective and verifiable requirements” for the organization’s compliance with the regulations in force.
The first two look at the activity. The third looks at the organization. The Minimum Safeguards booklet uses the CNPJ, Brazil’s corporate taxpayer identifier, as the unit of analysis and treats compliance as binary: the organization must fully meet the indicators. There are sixteen cross-cutting indicators, ranging from slave labor and labor and tax clearance certificates to licenses, embargoes, environmental infringement notices and proceedings brought by the Public Prosecutor’s Office, in addition to the sectoral indicators.
In a chain of conjunctions, each additional link reduces the chance of a positive final result. The larger and more diversified the company, the more links it has, even when the financed project is exemplary.
Three common situations
The cases below are illustrative, constructed from the booklet’s indicators. In all of them, the project being assessed meets the technical criteria, and the negative result comes from something unrelated to it.
| Situation | Indicator involved | Effect under the current reading |
|---|---|---|
| A power generator with dozens of facilities finances a new solar farm, but the license of an older power plant in another state is being renewed | A valid license “for all establishments” (SMT.11) | The solar farm may fail to qualify as aligned because of an administrative issue at another asset |
| An industrial company is facing a public civil action filed three years ago, still without a decision, on an issue unrelated to the production line being financed | Absence of civil inquiries, conduct adjustment agreements (TACs) and public civil actions in the last five years (SMT.14) | Ongoing proceedings in which the company may be cleared carry the weight of an established fact |
| An agroindustrial group with thousands of employees has an environmental infringement notice at one farm, while the financed operation is a biogas plant | “Relevant” environmental infringement notices in the last five years (SMT.13) | Relevance is judged case by case, without a common benchmark, and each assessor may reach a different conclusion |
It is worth noting that the booklet itself already makes some distinctions. The labor clearance certificate (SMT.2) considers only final enforcement proceedings, and the integrity indicator (SMT.10) allows “relatively minor” sanctions to be weighed “taking into account the safeguards as a whole.” In other words, the idea of materiality is already present, but only in isolated cases and without a uniform criterion.
What has worked: a narrow scope and materiality
In practice, the assessments that reach a defensible conclusion are those that begin by clearly defining their subject. Instead of asking whether the company is aligned, they ask whether this exposure, this project or this undertaking is aligned. The decree supports this reading: Article 6, paragraph 7, states that the assessment will be made “on an individualized basis, by organization or undertaking.”
With the scope defined, safeguards can be read in two layers:
- Non-negotiable safeguards, applied to the entire organization. Slave labor, current embargoes and serious corruption sanctions belong in this group. No limitation of scope should set them aside.
- Operational compliance safeguards, assessed at the undertaking level and with materiality. Licenses for other facilities, low-value infringement notices and proceedings still awaiting a decision would fall here, considering their relationship to the project, the stage of the proceedings, severity and recurrence.
The booklet already lists some of these factors for environmental infringement notices: the stage of the proceedings, possible penalties, the organization’s arguments and recurrence. Extending them, with common parameters, to other indicators would provide predictability for assessors and those being assessed.
Why spreadsheets and shared folders are insufficient
A narrow scope solves the conceptual problem, but creates an operational one: a bank goes from having one assessment per client to one per transaction, each with its own boundaries, evidence and validity period. S1 and S2 institutions are in the first reporting phase, with other institutions and insurers following.
At that volume, the model of a spreadsheet per client and files in SharePoint encounters three limits:
- Traceability. Each conclusion needs to point to the evidence, date and source that support it, as Carneiro and Ugeda argue in ConJur. Excel cells cannot retain this trail in a practical way.
- Validity. Certificates expire, licenses are renewed and proceedings move to new stages. An assessment that was correct in March may be wrong in September.
- Response fatigue. The same company receives similar questionnaires from every bank, investor and client it deals with, often for the same project, and answers from scratch each time.
Just course adjustments to maintain Brazil’s leadership on the agenda
The TSB is a step forward, and the aim is not to relax its requirements — but reliable results need to be produced at scale. The decree itself already offers a path, by providing for proportionality (Article 2, VII), gradual implementation (Article 7, paragraph 2) and reviews conducted by the Interinstitutional Committee (Article 1). For the next review, we suggest three topics for discussion:
- Consider the possibility of allowing assessments at the exposure or undertaking level, with clear rules on which safeguards remain necessary. Could a “Restricted alignment” category be considered along the lines of the “Partial alignment” category that refers to documentation?
- Separate safeguards into non-negotiable and operational safeguards, and define common materiality criteria for the operational ones: relationship to the project, stage of the proceedings, severity and recurrence.
- Distinguish pending proceedings from established responsibility, as the booklet already does for labor debts.
On the market side, the change is one of tools. Banks and companies will need to manage hundreds of relationships, send questionnaires to counterparties, track responses and reuse information already provided. Platforms built for this purpose, such as Enverium, where a counterparty answers once and shares with those who need it, are likely to be part of the infrastructure for this new phase. If you have been seeing the same thing in your assessments, or something different, it is worth talking.
Sources
- Decree No. 12,705 of October 31, 2025 (Planalto)
- TSB, booklet 04: Minimum Safeguards (Ministry of Finance)
- Highlights for the Private Sector on the TSB (CEBDS, November 2025)
- Decree separates rhetoric from sustainability performance (Carneiro and Ugeda, ConJur, November 24, 2025)
- Brazil’s Federal Government establishes the Brazilian Sustainable Taxonomy (Mayer Brown, November 2025)
- EU Platform on Sustainable Finance publishes final report on minimum safeguards (Business & Human Rights Resource Centre)
- EU Platform finalises report on taxonomy minimum safeguards (Linklaters)
- EU Taxonomy simplification measures adopted (Arthur Cox)
The cases in “Three common situations” are hypothetical. The indicator numbering (SMT) follows the booklet consulted in October 2026.