Explainer

How to Develop an ESG Standard 

Standards help to benchmark and improve ESG performance, in areas such as lobbying, requiring input from multiple stakeholders to make them fit for purpose.

ESG standards are designed to ensure that relevant disclosures are as consistent as possible and can be compared to one another. They typically provide specific, detailed and repeatable requirements for what should be reported for an ESG topic, including metrics.  

The Global Standard on Corporate Climate Lobbying was instigated by investors to drive a step-change in the commitment of investors and companies to responsible climate lobbying. The standard’s 14 indicators are intended to be applied consistently across all regions and sectors, aimed at encouraging companies to take responsibility for the impact of their advocacy. 

It was designed with the input of 150 stakeholders who contributed to two rounds of public consultation on the scope of the standard and its indicators. The process included an advisory group whose members provided expert input during the development stages.  

The design of the standard also built on the existing work of investor membership groups. The project was initiated by institutional investors AP7, BNP Paribas Asset Management (BNPPAM) and the Church of England Pensions Board (CoEPB), in a process supported by consultancy firm Chronos Sustainability.  

The underpinning research was built on engagement work by members of the Institutional Investor Group on Climate Change (IIGCC), as part of Climate Action 100+ (CA100+), undertaken in Europe since 2018 on corporate climate lobbying. The engagement work of CA100+ draws on analysis by Influence Map and the Transition Pathway Initiative and is also being spearheaded by Ceres with a US focus.  

The global standard on its website says it builds on and acknowledges the work of all those across several continents who have been promoting attention to and action on corporate climate lobbying.  

How do you decide the scope of a standard?

Rory Sullivan, CEO of Chronos Sustainability, tells ESG Investor that the standard covers two types of lobbying, both direct lobbying that a company does itself and the work that it does through trade associations.  

He says that the next stage for the development of the standard could encompass “indirect lobbying”.  

Sullivan explains: “This is the role that companies play in shaping the wider media and policy debate, and the landscape around us in question. This includes the role that social media plays.” 

Sullivan adds that the consultation process of the standard threw up interesting divergences on the influence of different actors on lobbying.  

Companies, investors and civil society were the three groups who responded to the consultation on developing the standard.  

“Both investors and civil society were concerned about the trade association membership of companies, but companies viewed trade associations as a much less influential actor,” said Sullivan, noting that the motivation behind such sentiments is due, in part, to companies wanting to be seen as the primary actors themselves.  

“They don’t really want to see themselves as agents being influenced,” he added. “I suspect there was also an element of being disingenuous and wanting to downplay the influence of trade associations.” 

Lastly, Sullivan says another interesting element of the standard is its contribution to trying to make engagement on climate corporate lobbying more outcome-based rather than disclosure focused.  

“It frames corporate climate lobbying, for the first time, by reference to a target – 1.5°C. Historically, the literature on lobbying and all the initiatives on lobbying were about whether a company was transparent about the process and whether it was consistent in its climate beliefs and lobbying approach,” he says.  

He adds that this has helped move approaches to corporate climate lobbying from being a set of process factors to considering something which was more grounded in outcomes and impact.  

Sullivan notes that since its launch companies have signed up and shown support for the standard alongside investors.  

“It wasn’t designed as a tool for investors to dump their views on what companies should do on lobbying,” he says. 

Institutionalisation of standard   

Rachel Crossley, Head of Stewardship Europe at  BNPPAM, tells ESG Investor that it decided to create the Global Standard on Responsible Climate Lobbying with asset owners AP7 and the CoEPB as a logical extension of the Investor Expectations on Corporate Climate Lobbying which was launched in 2018.  

Internally, BNPPAM uses the standard as a basis for its engagement with companies in CA100+, she says. “We assess their performance against it in-house and use that to identify weaknesses and urge them to address those gaps.” 

CA100+ has started to integrate the standard into its Net Zero Company Benchmark Indicator 7 and the next publication of the benchmark – due in October – will illustrate the extent to which the CA100+ cohort aligns to it.  

On promoting the standard, Crossley says: “I mention it to all investors, corporates and other stakeholders I speak to about climate lobbying. For example, I made a presentation to a large French corporate membership organisation during the year, to raise awareness among major French companies of the Standard and how it can be used by companies themselves, investors and others.” 

How do ensure a standard moves with the times?

Lobbying-focused think tank InfluenceMap sat on the technical advisory group for the development of the standard. Since 2015, InfluenceMap has run a platform for assessing corporate climate policy engagement.  

Edward Collins, Director at InfluenceMap’s LobbyMap, says: “From very early on, institutional investors have been the most active shareholders using this research. In the years running up to the global standard, InfluenceMap had been working closely with a small group of investors at the forefront of pushing this issue into the mainstream.”  

After the launch of the standard, InfluenceMap worked on pilot studies to see if it could incorporate the new/extended indicators proposed into its ongoing research and corporate assessment process.  

“We did three pilot studies over the course of 2022, covering three sectors that are critical for addressing climate change – oil and gas, automotive, and steel. These studies were initially one-offs but have since been incorporated in ongoing research processes.” 

Following the success and interest in the results of the pilot studies, the CA100+ process has proposed an extended set of indicators for its upcoming 2023 net zero benchmark, adds Collins.  

“The forthcoming iteration of their benchmark will contain the same core metrics from InfluenceMap as previous years, concerning a company’s real-world climate policy engagement activities, covering direct engagement and in direct engagement via industry association,” he says.  

He notes it will also contain additional metrics from InfluenceMap that serve as a deep dive on the rigour and transparency of each company’s governance and reporting processes around climate policy engagement, including the management of industry association memberships.  

Internally, the standard has become an important benchmark for InfluenceMap’s analysis, says Collins.  

“In particular, we refer to it as a basis for our assessment of company reviews/enhanced disclosures on their industry associations. In this sense, companies aligning with the standard are assessed as performing the best under this part of our system,” he says. 

“In addition, the global standard has become a critical reference point in emerging discussions with policymakers who are working on disclosure regulations targeting these issues and who are interested in current and best practice.”  

The continued relevance of the standard is reflected in the perspectives offered by key stakeholders.

Sebastien Akbik, Governance and Research Associate at the Principles for Responsible Investment (PRI), says: “The standard is an effective benchmark to assess companies’ lobbying and drive more responsible political engagement – PRI is happy to support it. Ensuring responsible lobbying is crucial to make progress on climate change and other issues across the spectrum of responsible investment best practice.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap