New frameworks and threats of regulation are emerging as asset owners and managers seek to tackle the damaging impact of negative climate lobbying.
Political lobbying has been back in the UK news headlines this summer thanks to former Prime Minister David Cameron trying to win deals for now-collapsed financial firm Greensill Capital from his former government colleagues.
Cameron, a paid Greensill adviser, was admonished for his lack of judgement in sending texts to the Chancellor, but it was decided that he hadn’t broken any rules.
The episode highlighted the often nebulous and hard-to-regulate methods which keep the lobbying machine running.
Such practices are also putting the Paris Agreement and net zero targets at risk. In the case of climate lobbying, it is often trade associations and industry bodies that are the ‘middlemen’ between companies and governments.
And with many governments due to make new commitments and develop new policies to tackle climate change at COP26 the stakes could barely be higher.
A prime example was seen in a July report from think tank InfluenceMap. It said that key industry groups were actively lobbying against efforts to implement the EU’s short-term climate goals ahead of its ‘Fit for 55’ package, despite many of the same groups publicly supporting net zero by 2050.
InfluenceMap said that of the 216 industry groups, many funded by corporate giants such as Volkswagen and Total Energies, 92% backed the 2050 target, but only 36% supported plans to cut emissions by 55% by 2030.
Such negative climate lobbying is a long-term issue. InfluenceMap states that since the Kyoto Protocol was signed in 1997 corporates have hindered policy such as the US Clean Power Plan and the EU’s Emissions Trading Scheme.
Influence Map says 90% of the world’s largest industrial companies retain links to trade groups opposing climate policy.
“There is still a lot of business to protect in the fossil fuel value chain, so they push back on climate policy. They try to distract and push other technological solutions that may or may not work or will take too long to implement,” says director Edward Collins.
Rory Sullivan, chief executive of Chronos Sustainability, says negative lobbying is not just carried out directly with policy makers but also on social media to shape debates.
“This is tricky and complex,” he says. “So little of it happens in public it is very difficult to get a complete picture.”
Alongside negative lobbying there are also examples of progressive climate lobbying such as European utility firms including Iberdrola.
“It’s a positive trend but the majority of corporates remain unengaged,” Collins states. “Negative lobbyists are engaging more than the companies in the financial or consumer-facing sectors, which should be nominally positive about climate change.”
He adds that these apparently unengaged firms don’t prioritise climate policy because often they don’t want to stick their heads above the parapet.
“But by doing nothing and being a member of a cross-sector trade association they may be having a negative overall impact. We’ve found these trade groups representing oil and gas to be very powerful on climate change. It is a dangerous disconnect,” he says.
Investor-led initiatives such as Climate Action 100+ have helped to ensure that engagement with companies over their lobbying practices is now firmly on the investor agenda. It requires companies to adopt Paris-aligned climate lobbying positions and implement enhanced governance and disclosure processes to ensure the industry associations to which they belong are also aligned.
“It is much more mainstream now,” Collins says. “Lobbying is one of the pillars of Climate Action 100+ and companies are doing audits of themselves and trade associations. They see it as a leadership opportunity. There is positive competition there.”
However, an April 2021 InfluenceMap report found that just 24 of 167 CA100+ target companies – typically those from the most hard-to-abate sectors – had produced a review of industry association alignment.
Sullivan is aware of such corporate sensitivities around trade associations through a recent project Chronos has undertaken with asset managers and owners AP7, BNP Paribas Asset Management and The Church of England Pensions Board.
They are currently developing an assessment framework on responsible climate change lobbying which will help companies and investors assess whether and to what extent corporate lobbying is aligned with the Paris Agreement.
It will have 23 indicators on how to measure good or poor lobbying practices around areas including policy/commitments, governance, action and reporting.
“We had consensus from 120 corporate and investor respondents on agreeing a Paris 1.5-degree frame of reference, agreeing that stakeholders in companies should have a greater voice in lobbying and that its definition should include social media and influencing,” says Sullivan. “Although they agreed that trade associations were important, we found that corporates didn’t believe that as strongly as everyone else. It was a surprising result which frankly made us look twice at the responses.”
The assessment framework is set to be launched “in the coming months” with Sullivan hoping that it will spark a perhaps unseasonal “healthy spring clean of ESG strategies by corporates and investors” and more consistency across the industry.
There will also be an expectations framework which sets out what investors expect of companies and their climate change related lobbying practices both negative and positive. There is also an intention next year for the assessment indicators to be embedded into CA 100+.
Chronos intends the framework, although primarily focused on climate, to be applicable to other ESG issues such as human rights.
Putting the positive case
Noting that investor awareness of corporate climate lobbying has increased since the Paris Agreement was signed, Sullivan suggests the time is ripe for a wider debate. “We wanted to reflect the new realities of the Paris Agreement and to ask whether the approach investors have been taking to lobbying was fit for purpose. We also want investors to think about lobbying not just in terms of negative actions. We want to ensure that companies have a duty to lobby positively in favour of good climate change policy,” he says.
Clare Richards, senior engagement manager at the Church of England Pensions Board, hopes the new framework will further focus corporate and investor attention. “We want companies and investors to use their weight and influence to leverage more responsible policy outcomes. Paying attention to corporate climate lobbying isn’t an optional extra. It is central to achieving a managed transition. We want investors to push this forward in company conversations,” she says.
Investors also need to question their own actions argues Lara Cuvelier, Sustainable Investment Campaigner at NGO Reclaim Finance. “Yes, investors should have tools to analyse the lobbying practices of companies, but they should first align their own lobbying activities with climate issues and stop opposing any binding measures targeting the most polluting sectors,” she says.
Derek Butcher, Senior ESG, Corporate Governance & Responsible Investment Analyst at RBC Global Asset Management, says shareholders are already keeping company directors and managers on their toes.
“The prominence of lobbying activities by companies varies by jurisdiction and sector, and lobbying can play a key role in their ongoing business strategies,” he says. “Several major companies have now received shareholder proposals requesting enhanced disclosures on climate-related lobbying activities, often in an aim to identify lobbying activities that may be inconsistent with a transition to a low-carbon economy or with their stated climate-related strategies. Lobbying disclosure requirements differ by jurisdiction, but eventual disclosures can often be opaque. As a result, enhanced disclosures in this area can provide investors with meaningful information.”
According to the US SIF Foundation’s ‘Report on US Sustainable and Impact Investing Trends’, corporate political activity was the most frequent topic for shareholder proposals over the 2018-2020 period, with 270 filed by institutional investors and investment managers.
Butcher says RBC reviews such requests on a case-by-case basis but will generally support shareholder proposals requesting enhanced disclosure on the alignment of its lobbying activities with climate change initiatives, including its membership in industry associations.
Not all asset managers are so aware of a need to act on negative lobbying. According to a May 2021 report from think tank Preventable Surprises, only half of the world’s top 50 asset managers had corporate or trade association lobbying as a priority issue in ESG stewardship statements, reporting or engagement.
Only 10 of the 50 voted for climate lobbing disclosure resolutions across four sample companies and only 12% show public support for the Institutional Investors’ Group on Climate Change (IIGCC) Investor Expectations on Corporate Climate Lobbying statement.
Preventable Surprises recommends that asset owners include a commitment to lobbying alignment in RFPs and asset manager appointment processes. Asset managers should also develop internal lobbying and influence policies, publish a lobbying and influence policy that governs internal practices and prioritise engagement on corporate capture in stewardship activities.
“Our results were not exactly encouraging,” says Preventable Surprises Chief Executive Jerome Tagger. “Sometimes asset managers find it uneasy to intervene in the policy space although they are happy to do so when their own interests are at stake such as taxation. They are like multi-headed hydras, and it is likely that their policy engagement teams do not interact with their ESG teams.”
He would like companies to create policies on lobbying, adopt transparency on the hiring of lobbyists and former politicians, explain how lobbying and influence activities align with public commitments to support goals on climate change and other shared societal challenges. Trade associations should publish lists of corporate members, and details of member involvement in policy-specific programmes and publish details of influence campaigns beyond registered lobbying.
InfluenceMap’s Collins says there is a need for more regulation and states that a recent suggestion from Fiona Reynolds, Chief Executive of the Principles for Responsible Investment, that negative lobbying could be considered as falling foul of anti-trust laws, has merit.
“I can understand her line of thinking. The longer negative lobbyists hold up these policies then the more severe and disruptive they are going to be for the rest of the market,” he states. “They are holding back an entire market transition. It is an argument we are going to see more of as urgency grows.”
Collins says his ‘moonshot’ regulation would be for companies to be required to disclose their lobbying in filings with securities regulators, such as the US Securities and Exchange Commission. “It should be a necessity to identify the climate policies that are material to their business and which they are engaging on. They should be clear about what actions they are taking,” he says.
Tagger says the terrain is ‘fertile’ for change.
“Most people today have a sense that Washington and Westminster are broken. You can reinvent the interaction between private and public sectors,” he says. “Negative lobbying is a systemic dysfunction that impacts what investors hope to achieve in ESG. More needs to be done. This is not going away.”