How corporate lobbying is coming under greater pressure
With the world’s top polluters actively lobbying governments on climate change policy, investors are now paying this corporate behaviour greater attention.
When identifying the world’s 25 “most negative and influential” companies, a report by InfluenceMap revealed that 80% of these had recently made net-zero commitments. These companies (mostly operating in the automobile, energy and airline sectors) may have made such targets, but this was found to be at odds with their lobbying activity.
With billions spent every year on corporate lobbying, investors are now paying greater attention to how much resources companies divert towards attempting to influence legislative policy.
“Lobbying itself, particularly from a climate context, is important,” explains Chandra Gopinathan, senior investment manager in the sustainable ownership team at Railpen. “We have a proprietary framework we use in order to assess companies’ client risk alignment, which includes a scoring that features lobbying as a pretty big part.”
This is not a new phenomenon, and it is a well-established practice for companies to lobby governments for beneficial terms of operating environments. The findings of the InfluenceMap report may not come as a surprise, that polluters continue to resist climate change transition, but these efforts still deserve scrutiny according to Federated Hermes’ Diana Glassman.
A director in the asset manager’s engagement team, Glassman says such relationships remain “powerful and important” and should be used to hold investees to account: “Companies that engage on policy naturally seek to influence it in their own interests.
“For the most part, large oil and gas companies have gotten the message loud and clear that the energy transition and decarbonisation are upon us. They say they expect to play a role, and support the Paris goals, methane regulation and incentives that make new technologies more economic. But the devil is in agreeing on the details.”
For the most part, large oil and gas companies have gotten the message loud and clear that the energy transition and decarbonisation are upon us. But the devil is in agreeing on the details.
Getting a view of lobbying efforts
The challenge for investors lies in gaining visibility of companies’ lobbying efforts. Contracts to third-party lobbying consultants can be undertaken using vague descriptors in accounts, while quantifying a company’s legislative influence can be a challenge. Gaining this insight is becoming a core focus for investors, explains Waystone director of ESG Rebecca Palmer.
“Investors continue to seek additional disclosures around a company’s lobbying activities to see how well aligned these are to their own sustainability objectives,” says Palmer. “Investors are also looking at the quality of the lobbying disclosures. For example, the company’s rationale for its lobbying activities, disclosure of the company’s overall lobbying expenditures, board and/or management oversight of lobbying activities, and description of this oversight.”
This can be a challenge to gain as Railpen’s Gopinathan points out that companies “are not dying to disclose” their lobbying activities. This is because of the greater public pressure on companies on climate change, something governments have already begun to recognise.
Gopinathan says it is important to look at lobbying from both sides and evaluate how receptive governments are being to such corporate arguments.
“Governments are lending their support to climate change policies, but what does this exactly mean in practice?” asks Gopinathan, pointing to the US as an example where recent state-level discussions on climate change are at odds with federal announcements.
“It’s important to get into the granularity of the politics and assess how deep that climate change policy, at a national level, is actually affected at a local level,” he adds. “How exactly do sovereign announcements translate into policy and implementation, especially at a local level?"
Lobbying relationships may still be powerful, and challenging to gain oversight of, but the influence of investors is growing as well points out Waystone’s Palmer. This is especially the case if companies could be accused of greenwashing if their lobbying practices do not tally with sustainability targets.
“Investors remain a powerful force for change, excluding those companies that they believe are poor performers on ESG metrics and investing in those that they deem to be leading/improving on ESG issues,” says Palmer.
“Investors still have a significant role to play as they deploy capital, for example requesting asset managers to set net-zero targets for the portfolio. Shareholders remain in a unique position to lobby for change.”
