Existing reporting frameworks don’t ask corporates to dive into the details, think tank says.
Any mandatory climate-related reporting by US corporates should require high levels of climate advocacy and policy transparency, according to global think tank and member of the Climate Action 100+ Technical Advisory Group InfluenceMap.
The think tank has recommended that US corporates are asked to provide “a full and detailed account of company advocacy positions on all the existing and potential future [climate-related] policy, regulatory and other government interventions globally that may materially impact the business”.
InfluenceMap was responding to an open consultation by the US Securities and Exchange Commission (SEC), which requests public comment on the possibility of a mandatory climate-related reporting framework.
“There is no [SEC] guidance at present for disclosing details of policy positions or engagement. Escalating engagement and resolutions by investors on the topic of corporate climate policy engagement points to the inadequacies of existing frameworks and efforts by companies to disclose such information in a meaningful manner,” InfluenceMap said.
Policy engagement on climate-related issues refers to a range of activities defined by the 2014 United Nations protocol ‘Guide for Responsible Corporate Engagement in Climate Policy’, InfluenceMap added. This includes use of legal strategies, advertising, lobbying, political contributions and research funding, both directly by corporations and indirectly through third-party organisations.
The SEC has asked respondents to provide recommendations as to how to best monitor or structure the framework, identify elements of existing frameworks that could be adopted, and disclose the advantages and disadvantages of permitting investors to help develop US disclosure standards. The consultation opened on March 15 and lasts for 90 days.
Negative policy engagement is a systemic portfolio risk, InfluenceMap said, adding that large, diversified investors, such as pension funds, want to see companies engaging with ongoing climate-policies and disclose how, and to what extent, policy will impact their business practices.
Swedish pension fund AP7 (US$50 billion in assets under management) previously blacklisted ExxonMobil based on its weak climate policy engagement criteria, the think tank pointed out.
In 2019, a coalition of investors led by employee-owned investment manager Boston Trust Walden and trade union American Federation of State, County and Municipal Employees (ASFCME) demanded better lobbying disclosure from US corporations, more recently focusing specifically on climate-related lobbying.
The Principles for Responsible Investment (PRI) has also been focused on the lack of climate policy engagement transparency. In its ongoing Inevitable Policy Response, the PRI said that “financial markets today have not adequately priced-in the likely near-term policy response to climate change”.
Shortcomings of existing frameworks
Voluntary reporting frameworks such as those offered by the Global Reporting Initiative, Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) are more focused on disclosures of physical climate risks rather than policy engagement, the think tank said, such as disclosing greenhouse gas (GHG) emissions.
“Existing disclosure frameworks [are inadequate because they don’t] address investor need for accurate information on corporate climate policy engagement, despite multi-year efforts by investors pressuring companies to disclose,” InfluenceMap noted.
TCFD recommendations do make reference to firms’ interaction with climate-related policy, but don’t ask for corporates to explicitly address these points in their disclosures, the think tank pointed out.
The CDP system currently contains two questions which refer specifically to policy engagement industry associations, but “the results of these do not feed into the CDP scoring used by investors and there is no external verification of the company responses”, the think tank said.
Climate Action 100+, which comprises 545 investors with a total of US$52 trillion in AUM, has formalised expectations for companies to manage their climate policy engagement processes, the think tank acknowledged, adding that “there is currently no detailed format for such disclosures”, with only 14% of 167 companies over a period of three years making disclosures related to climate policy.
“This gap points to a potential opportunity for the SEC to provide rules/guidance on the topic to facilitate corporate disclosures in line with its mandate of protecting investors,” InfluenceMap said.