Indirect Lobbying Thwarts Investor Scrutiny – PRI

Greater transparency on political engagement by investee firms is “just the first step” to a more integrated and proactive approach.

Responsible investors are hindered in their attempts to probe political engagement by companies whose shares they own by the opaque nature of much of their activity.

This is particularly the case with regard to indirect lobbying, such as the use of social media to influence public opinion, according to new analysis by the Principles for Responsible Investment (PRI) and consultancy Chronos Sustainability.

Noting that investors “focus disproportionately on direct lobbying”, the report adds: “The most significant barriers to investors engaging on indirect lobbying are the lack of clear definitions, the limited corporate disclosures on indirect lobbying and the general lack of useful research to underpin engagement.

“These barriers limit investors’ ability to challenge or probe companies’ approaches. Some investors suggested that indirect activities may become a focus once sufficient progress has been made on more direct corporate and trade association lobbying.”

NGOs including UK-based InfluenceMap have highlighted the use of social media to spread misinformation about climate change, with oil and gas firms identified as posting misleading advertisements about their open operations and funding media outlets that promote climate denial.

Clearer information is generally more available to investors and other stakeholders regarding direct lobbying, which involves personal contact between those carrying out the lobbying and public policy decision-makers, such as ministers or officials. Such meetings tend to be logged in the interests of transparency and, in some jurisdictions such as the United States, companies are required to produce regular reports on their lobbying expenses.

Focus on climate

The report, titled ‘Responsible political engagement: stewardship practices and challenges’, draws on qualitative interviews with investors, think-tanks, civil-society organisations and others and covers existing practices and recommendations for future action. It argues, with greater transparency, political engagement with investee companies can become “a lever for progress” on sustainability.

“Investors should assess the extent to which portfolio companies’ political engagement aligns with investors’ long-term interests and responsible investment objectives, as well as how it contributes to informed public policy-making.”

Climate change emerged as a priority area for investors. The PRI and Chronos found it to be the only topic on which responsible political engagement (RPE) has been well integrated into their broader engagement activities on ESG issues.

Earlier this year, a group of asset managers and owners published a 14-point disclosure standard to better monitor the climate change lobbying activities of investee companies.

Two main reasons were given by investors for the general lack of integration of RPE into engagement activities. First, they typically had insufficient engagement resources to prioritise RPE. Second, they cited the question of tangibility – “without being directly linked to a specific theme such as climate change, companies often fail to see the relevance of RPE for investors”.

Legitimate business interest

Despite the lack of integration, the PRI said investors understood the implications of RPE for their portfolios and “expressed desire” to improve their quality of engagement with companies, and to take more holistic approach, moving beyond their focus on climate change.

In terms of the challenges ahead, it said investors needed to move toward acting on the information they were beginning to gather.

“When investors engage on RPE, the aim is to ensure corporate political activities align with stated company positions and agreed societal sustainability goals. However, to date, successful RPE engagements have tended to be seen as those that improve transparency in reporting, mostly with a view to discourage negative lobbying.”

It added: “Investors recognise that transparency is important but only an initial step. Transparency does not guarantee a change in outcomes; however, lack of transparency makes it extremely difficult to review previous political activities or the associated outcomes.”

Earlier this year, a report on lobbying from PRI said: “Companies, like other political actors, have a legitimate business interest in shaping laws and policies that affect them. They cannot be expected to abstain from discussing issues that affect their operations or business prospects.”

It added; “However there are concerns that the outsized economic and political power of large companies results in other voices in society being under-represented in public policy debates.”

The PRI said it would include RPE-related considerations in its Advance collaborative stewardship initiative for human rights and social issues and work with partner organisations to “evaluate and engage” portfolio companies on Paris-aligned climate lobbying practices.

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