Federal Environmental Agency (IBAMA) v. Siderúrgica São Luiz Ltd. and Martins

In July 2019, Brazil’s Attorney-General’s Office (“Advocacia-Geral da União”), representing the Federal Environment Agency (“IBAMA”), filed a public civil action (environmental class-action) against a steel company (Siderúrgica São Luiz Ltda.) and its managing partner (Mr. Martins), for environmental and climate damages allegedly caused by the company’s continuous and fraudulent use of illegally sourced coal in its units in the State of Minas Gerais. According to IBAMA, the company falsified the 'certificates of origin’ for the coal it purchased. IBAMA claims that the company purchased and burned 44,636 cubic meters of coal, fomenting a scheme of illegal deforestation for coal production. Highlighting the key role of steel production in the 'life cycle’ of coal, IBAMA contends that the defendants should be held strictly and jointly liable for the (i) environmental damages resulting from the illegal deforestation (equivalent to an area of approximately 2,231 football fields), and (ii) climate damages resulting from the greenhouse gases emitted from the illegal deforestation, from the conversion of the illegally sourced biomass into coal, and from burning the illegally sourced coal in its steel production. Based on the National Environmental Policy and National Climate Change Policy (Laws Nos. 6,938/1981 and 12,187/2009, respectively), IBAMA seeks remedies for both environmental and climate damage allegedly caused by the defendants: (i) reforestation of an equivalent area; (ii) compensation for interim and residual environmental damages; (iii) compensation for climate damages based on the social cost of carbon, which should be invested into the creation of carbon sinks; (iv) collective moral damages, to be valued according to the defendants’ profits from their illegal activities (disgorgement of profits); (v) undertaking of environmental compliance programmes; (vi) unavailability of goods and values as well as loss or restriction of tax benefits and incentives, and loss or suspension of participation in financing lines in official credit establishments. On February 3, 2021, the magistrate issued a decision rejecting the request for an injunction for the implementation of the environmental integrity program by the steel company and for the suspension of tax incentives or benefits, on the grounds that there is no legal provision imposing the need for the environmental integrity by companies that explore activities potentially harmful to the environment. The decision also states that even in the face of strong evidence that the company committed environmental violations in 2012, it is not possible to impose the requests made by the plaintiff, because it is not known whether the company continues to practice the same acts. In addition, the judge also did not accept the request for blocking or unavailability of assets in the amount of BRL 16,000,000.00 from the company to repair environmental damage, on the understanding that even if there is a causal link as to the company's participation in environmental infractions as a result of the records drawn up by IBAMA, the current moment requires a greater incursion of evidence of the damage caused by the steel company. On March 2, 2021, the competent judge issued another decision, rejecting the motions for clarification of both parties, on the grounds of the presence of defects and irregularities in the documents. On October 5, 2022, Geraldo and GMM Participações submitted their defense, in which they argued that there was no proof of environmental damage and the causal link, that the claim for damages for residual damage was generic, that there were no internal rules for the use of the Social Cost of Carbon and, therefore, requested that the action be dismissed and that the request for a reversal of the burden of proof be rejected.