Investors Take on Dark Arts of Lobbying  

Exposing whether corporates’ positions on climate change are being undermined by trade associations’ pro-fossil fuel political lobbying is gaining traction.   

Drama worthy of a Netflix blockbuster shook this year’s US AGM season when the filer of a climate-related corporate lobbying proposal at CNX Resources faced public personal attacks from the natural gas company’s CEO.  

According to Michael Passoff, CEO at shareholder advocacy group Proxy Impact, who filed the shareholder resolution asking CNX how its lobbying aligned with the Paris Agreement on behalf of a long-term shareholder, Handlery Hotels, the firm made the unusual move to write to the shareholder proponent when its attempts to exclude the proposal failed.  

“The letters included offers to talk, which we agreed to, and provided CNX with three more call dates,” said Passoff, speaking on the 2023 Proxy Preview Review webinar. “But the letters were this odd mixture of polite corporate language which simultaneously questioned the proponent’s business operations, motives and integrity. The proponent, feeling attacked, did not respond.”  

CNX’s CEO, said Passoff, followed with “blistering letters” to the proponent posted very publicly on the company’s website and social media posts, along with open letters to proxy voting agencies ISS and Glass Lewis and discussion of the matter on company earning calls. CNX said the proposal was for media attention, money and part of a leftist agenda attacking American jobs and shareholder value, posting these accusations in formal SEC filings, meant only to contain material information for investors, said Passoff  

Proxy Impact was forced to file a complaint with the SEC. In the end, the climate lobbying vote at CNX got 24% shareholder approval, the highest vote against the company that year, worth US$290 million of shareholder support.  

Climate-related lobbying proposal support steady  

This solid support for the CNX climate lobbying resolution, despite the company’s very public efforts to quash it, reflects a wider theme this AGM season. In general, climate-related proposals have seen sweeping dips in support, but support for climate-related lobbying proposals has stayed broadly steady.  

Climate-related lobbying proposals typically try and get disclosure from a company on its membership of trade associations or to develop a policy on membership. They address growing concerns from investors on the incongruency of a company being a member of a trade group that may lobby against climate change policies, but then as a company claim commitment to the net zero transition.  

Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, says voting activity, especially in the US, with regards to climate lobbying has been a constant theme since 2020. “It’s interesting that at a time when resolutions by shareholders have become, from an asset manager’s perspective, considerably more prescriptive, this is the one area that hasn’t really been affected. We’re getting quite reasonable requests for granular material disclosure on which associations are they affiliated with, what are they up to and their political spending.”  

Morningstar research conducted by Stewart finds that 12 US proposals filed over the last three proxy years focused specifically on climate-related lobbying. They enjoyed a high level of shareholder support at 49% over the three years, peaking at 61% in 2021. Support fell to 31% in 2022, reflecting the pullback in support for “prescriptive” resolutions, the research says.  

This year support for climate lobbying proposals in the US has grown slightly to 35%, according to Heidi Welsh, Executive Director at the Sustainable Investments Institute. Stewart is currently doing research on this year’s ESG proposals, including on climate lobbying, with a report set for release in October before COP28.   

One interesting finding from Stewart’s current research is that support from US asset managers for climate lobbying proposals is “considerably lower” than that from European asset managers. The top ten US asset managers on average supported 47% of climate lobbying-related resolutions over the last three proxy years. The average was pulled down heavily by Dimensional (11%), BlackRock (27%), and Fidelity (30%) as JP Morgan and Invesco both cast more than 80% of their votes in favour of climate-related lobbying resolutions over the last year years, while T Rowe Price, Franklin Templeton and State Street all showed greater than 50% overall support for these proposals.   

In comparison, eight selected European managers—abrdn, Allianz Global Investors, AXA IM, BNP Paribas AM, Fidelity International, LGIM, Schroders, and UBS AM—showed over 90% support for these proposals, with five managers supporting all 12 such resolutions. 

Diverse shareholder tactics 

In Europe, the Church of England Pensions Board has been very active this year on corporate climate lobbying issues, co-filing shareholder resolutions, threatening to vote against directors for non-action on disclosure and taking part in an unprecedented court case to get legal clarity on the issue.  

Last year, it also initiated the Global Standard on Responsible Climate Lobbying with Swedish pension fund AP7 and BNP Paribas Asset Management, with support from Chronos Sustainability. It builds on work by the Church of England Pensions Board and AP7 on investor expectations on corporate lobbying with the Institutional Investors Group on Climate Change, as part of Climate Action 100+. Another initiative established with support from the Church of England Pensions Board, the Transition Pathway Initiative, analyses whether companies have a consistent position on climate change in their public disclosure and lobbying efforts, as part of its scoring of companies.   

It had a victory this year with National Grid which agreed to publish a report on its lobbying activities related to climate change, and to conduct a review, after the Church of England Pensions Board, along with AP7, pre-declared they would vote against the chair and CEO over lack of disclosure.  

The Pensions Board had been engaging with the company on corporate climate lobbying as a priority since early 2023 in partnership with AP7, and also as a designated lead investor for National Grid engagement through Climate Action 100+. 

“We’ve certainly pre-declared before,” says Laura Hillis, Director, Climate & Investments at the Pensions Board. “But I don’t think we’ve ever had quite the response. I do think we will pre-declare more now.”  

Hillis credits National Grid for escalating quickly after it pre-declared its voting intentions. “We felt it was important and material enough to make a public statement and it pushed them into action, which was really good. But I don’t think it will work with every company. Some companies really don’t care when you do that. We also pre-declared a vote against VW directors this year and they have produced an industry association disclosure report since then, but there’s been many, many years of various escalations and activities with them.”   

These escalations include a court case targeting VW for not disclosing its corporate climate lobbying. It represented the first time investors started European litigation on a climate-related matter. Along with the Church of England Pensions Board, Swedish public pension funds AP7, AP2, AP3, AP4 and Denmark’s AkademikerPension, filed the case at a German court over concerns that while the auto giant was publicly championing the green transition, it could be undertaking lobbying activities that run counter to its stated climate ambitions, via its membership to a number of automotive and business associations.   

The case was filed by the investors to test whether VW had the right to refuse to table an AGM agenda item on the matter and sought to clarify whether shareholders of a company in Germany had the right to put an item on the agenda of the AGM. The legal claim was based on the German Stock Corporation Act but could have had implications for other civil law systems in Europe, including France, where the scope of minority shareholder rights is also in doubt.  

The investors, however, suffered a blow as the German court sided with Volkswagen and dismissed their case.  

Hillis says: “We’ve learnt from the case but everyone is a bit frustrated that we didn’t get the outcome that we wanted, not just in terms of winning or losing, but we were hoping to get to the point that they would be able to clarify that point in terms of the Corporations Law, so that it was very clear about whether we are able to file a shareholder resolution. We didn’t get that because the actual court findings didn’t really touch on that.” 

Confused companies  

To the casual observer, it may seem strange that investors struggle so much to get lobbying disclosure from companies, considering the information isn’t commercially sensitive.  

Drawing on her background working on these issues in Australia, Hillis says: “One thing I definitely noticed talking to companies about this when I was in Australia is that they didn’t get why it was important to investors, or even part of Climate 100+. I got that question a lot from companies. Within the investor community there was never any confusion about why this was important. But the companies always got confused.”  

Hillis surmises there “are a few things going on here”. Firstly, as industry associations are one step removed from a company, “it’s not something that they need to directly have oversight over” and for someone working in the sustainability function within a company it’s not under their remit, so they feel it’s not as directly related to their sustainability activities.  

Also, giving the example of a mining company which may be a member of a mining industry association that is lobbying to undermine climate action, Hillis says it may be important to maintain membership because of its work on safety issues. “You might be a member of an association for ten different reasons,” says Hillis. “So, your position as a company is that you need to remain members of these associations, perhaps reasoning, ‘what they do on climate has nothing to do with us’, when of course that’s not true. But it does make it a little bit difficult to have these conversations when they think their industry associations’ positions are not their positions.”  

Stewart says the reticence of companies likely starts with a lack of precedent from previous years, which is now starting to change.  

Welsh suggests the situation is changing, saying a number of climate lobbying shareholder proposals were withdrawn this year after the companies agreed to disclose information. But she retains a degree of scepticism. “Thinking about the big picture, I think it’s becoming fairly evident that voluntary corporate action to address climate change is not going to be enough and that government action to mandate changes is really going to be needed.” 

Welsh suggests that this would include mandated disclosure on lobbying from companies. Stewart also suggests this, saying given that climate lobbying disclosure has been a constant theme for the past four years, “it does suggest that there’s a need for better regulation or required disclosure in that area”. 

 As Stewart analyses corporate lobbying proposals for the just-ended AGM season, it seems likely the issue will only persist next year. 2023 saw the first climate lobbying proposal in Asia filed at Japan’s Toyota by European asset managers including AkademikerPension, and an emerging NGO focus on asset managers’ incongruency on climate lobbying activity.  

Hillis says managers’ lobbying isn’t an area that the Church of England Pensions Board has done a huge amount of work on yet. “We haven’t gone to the extent of asking them to produce lobbying disclosures formally. But I think we should.” 

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