18-11-2024
Our latest roundtable provided a global update on investor expectations on corporate political activities and lobbying. On the 7 November dialogue, leading investors and corporate accountability experts shared their perspectives on why and how corporate political influence must become more transparent and accountable. Coming just two days after the US elections, the conversation focused on corporate political engagement in the climate change and sustainability arena, but also highlighted the importance for investors of going beyond climate change to ensure corporate lobbying is consistently and transparently reported across industries. This blog flags a few of the key takeaways from the roundtable for investors, companies, regulators and ESG data providers.
1. Global perspectives on the future of transparency and accountability for corporate political activities.
The core message from the panel was that any form of corporate political engagement, starting with climate-related lobbying, must be transparent, accountable, and reported on in a consistent manner. Matthew Genasci, Senior Investment Stewardship Manager at Norges Bank Investment Management (NBIM) stressed that corporate disclosure expectations developed by investors focused on climate-related lobbying should be extended across all industries. To enable this process, Norges Bank recently published a view ‘Responsible corporate policy engagement’ [1]. The view focuses on the risks of non-transparent political activities and other forms of lobbying. The view references IMF research on bank lobbying during the Global Financial Crisis to underline that if left unchecked, “in some contexts, corporate policy engagement may also contribute to higher levels of company-specific and systemic risk.”
The view then sets out high-level expectations for around 9,000 portfolio companies. The world’s largest sovereign wealth fund expects companies to approach policy engagement in a responsible manner, with transparency and robust oversight identified as cornerstones of responsible corporate engagement in the policymaking process. The NBIM view also lays out expectations that a company’s policy engagement activities should align with the company’s stated policies and public commitments to sustainable value creation. Importantly, the view also highlights risks for investors from policy engagement that is rent seeking in nature, rather than supportive of long-term value creation [2]. Corporate rent-seeking and policy capture run counter to long-term investor interests, and can augment existing market and firm-level risks, or create new legal and reputational risks.
The NBIM view matters as the fund manages the Norwegian Government Pension Fund Global, the country’s wealth fund. With around US $1.7 trillion in assets, it is the world’s largest sovereign wealth vehicle, and is also the world’s largest single owner of stock exchange-listed companies, owning around 1.5 percent of all shares in the world’s listed companies. So their expectations help to set a floor of expectations for global corporate conduct and the data that is reported on and made available by companies and financial data providers profiled in The Good Lobby Tracker.
2. Legal risks arising from corporate greenwashing.
Raj Singh, Climate Engagement Lead at The Phoenix Group, the UK’s largest long-term savings and retirement business with over US $355 billion of assets under administration, brought attention to the growing issue of greenwashing risk. This happens when companies, including banks and other capital providers, make misleading or unsubstantiated claims about their environmental actions and climate pledges [3]. He mentioned that companies may use vague language and disclaimers in their climate strategies to reduce the binding nature of their commitments, making it difficult to hold them accountable for their actions via investor stewardship dialogue. Laura Hillis, Director of Climate and Environment, at the Church of England Pensions Board elaborated on this, noting that recent legal cases, such as the one in Australia where oil and gas company Santos is being sued by its shareholders for overstating its climate impact [4], may become a crucial tool for holding corporations accountable. Going forward, greenwashing litigation that changes the way environmental claims are communicated, building on the advertising standards complaint against HSBC in the UK [5], could serve as a template to challenge other forms of corporate political communication and influence that are misaligned with stated public policy or company sustainability objectives beyond climate change.
3. The role of asset owners in driving change in company conduct and reporting.
All of the panellists agreed on the important role of institutional investors, and asset owners in particular, in influencing corporate political behaviour for the better. Large asset owners are uniquely positioned to demand better practices from the companies they invest in, and understand the power and effectiveness of corporate political engagement in shaping regulations and investment outcomes across asset classes. John Keenan, Corporate Governance Analyst, Capital Strategies, at the American Federation of State, County and Municipal Employees (AFSCME) and Laura Hillis both argued that asset managers need to include all corporate political activities in their evaluations of companies, ensuring that their investments are aligned with sustainability goals. The expectations for this disclosure, and for asset managers to engage companies on these issues, represents a significant shift in how corporate governance is approached, where financial actors are increasingly holding companies accountable for their political activities, ensuring that businesses align with long-term sustainability objectives.
4. Mandatory lobbying disclosure and new corporate governance expectations.
One of the central recommendations that emerged from the discussion was on the need for mandatory lobbying disclosure and consistent regulatory approaches to the issue. The panellists argued that corporate boards should be directly involved in ensuring that companies are transparent about their corporate political activities, and should understand how company capital is deployed to influence public policy and regulations. This would involve not only making disclosures about their lobbying but also ensuring that the claims made in these reports are accurate and well-supported. The idea is that a strong, binding commitment to disclosure would provide stronger incentives and better monitoring for aligning corporate actions with the sustainability goals they publicly state.
5. Corporate reporting fatigue and the voluntary standards that drive progress.
Raj Singh highlighted the issue of reporting fatigue, where companies face increasing pressure to disclose detailed information about their environmental impact, including their political activities. While transparency is crucial, Singh cautioned against overburdening companies with excessive, overlapping reporting demands that might dilute the effectiveness of the disclosures. A balanced approach is necessary, and panellists called for more efficient ways to collect lobbying-related data without overwhelming businesses. This is an area where ESG data providers should be able to update their approach to following the NBIM view and existing reporting framework best practices outlined in The Good Lobby Tracker, to provide investors with consistent and comparable data on corporate political activities and other forms of lobbying.
Jane Nelson, Director, Corporate Responsibility Initiative, at the Harvard Kennedy School, stressed the importance of voluntary standards for corporate disclosure and how these can support company leadership ambitions. While some may argue for mandatory reporting, Nelson – joined by Professor Alberto Alemanno – noted that the political climate currently makes such measures challenging to implement. As a result, voluntary standards combined with investor expectations could play an essential role in improving corporate practices – by showing what good might look like in this relatively new space of corporate accountability – even as efforts to push for mandatory regulations continue.
6. Strategic litigation as a tool for changing market expectations and conduct.
The Good Lobby founder and director, Professor Alberto Alemanno, concluded the discussion by emphasising the potential of strategic litigation as a fresh, innovative tool for advancing corporate political accountability: if companies fail to meet their stated commitments, legal action can be used to compel them to act more responsibly. This method could offer an additional avenue for civil society to challenge businesses that engage in deceptive, contradictory or insufficient action on sustainability. Strategic litigation by civil society or shareholders themselves will combine with growing pressure from investor stewardship teams, who see value in pushing for more transparent corporate governance practices around corporate lobbying and policy influence.
7. The role of The Good Lobby Tracker in enabling progress.
The panel welcomed the forthcoming publication of the 2025 edition of The Good Lobby Tracker. The second edition of the Tracker highlights a greater interest in corporate political activities by ESG data providers and the publishers of the world’s largest corporate sustainability reporting frameworks.
The new edition of the Tracker provides a simple, comprehensive and easily accessible way for investors and other stakeholders to understand which ESG data providers and corporate reporting frameworks are better than others for assessing corporate political engagement and where the entire industry faces persistent blind spots and requires encouragement to improve. With high-level analysis on 27 sustainability reporting frameworks and ESG data provider methodologies, the Tracker seeks to play an enabling role. The Tracker contributes to ongoing efforts in all major capital markets to increase corporate transparency and to hold companies accountable for their lobbying activities, it also elevates the efforts of major asset owners – including the Church of England Pensions Board, the Phoenix Group, and Norges Bank Investment Management – to set clear and consistent expectations around conduct and reporting on political activities and other forms of lobbying by the companies they invest in.
These expectations are set out in voluntary standards, including the Global Standard on Responsible Climate Lobbying, launched in 2022 by AP7, BNP Paribas Asset Management and the Church of England Pensions Board. The Global Standard sets detailed reporting expectations for companies that set a high bar and are globally important [6].
Towards greater transparency and accountability?
The conversation painted a picture of a growing ecosystem of stakeholders – large asset owners, their asset managers, NGOs, legal experts, and corporations themselves – working together to push for greater transparency and accountability in corporate lobbying. These expectations are driven by assessment on the financial materiality of lobbying and corporate political activities. As observed on the day following the US elections, share prices and company prospects depend heavily on expected policy outcomes, and lobbying is a priority and an important strategic tool for all large companies in heavily regulated sectors of the economy [7].
Continued investor interest in sustainability and climate change lobbying will require a re-evaluation of how businesses engage with policymakers, and how this conduct is reported on. Panellists agreed that both voluntary and mandatory measures are essential to create an environment where corporate conduct and reporting expectations meet higher standards. In the future, a combination of better disclosure rules, sustained investor stewardship and dialogue with companies, strategic litigation, and fit for purpose regulatory frameworks will be critical to ensuring that corporate political activities align with the broader public interest, starting with sustainability and climate action.
References
[1] Norges Bank ‘Responsible corporate policy engagement’ (12.08.2024): https://www.nbim.no/en/publications/our-views/2024/responsible-corporate-policy-engagement/
[2] Rent seeking refers to efforts that market participants pursue to increase their own wealth without creating any additional benefit to society. Firms strengthen their rent seeking efforts by lobbying government officials and agencies; to influence the laws and regulations that govern their industries. See: Jobes (2022) ‘The Corporate-Government Dynamic, Rent-Seeking, and the Erosion of Market Competition:’ https://www.law.georgetown.edu/denny-center/blog/the-corporate-government-dynamic
[3] ‘Double Trouble: The Rise of Greenwashing and Climate Litigation for Banks:’ (26.01.2024): https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/double-trouble–the-rise-of-greenwashing-and-climate-litigation-for-banks#
[4] ‘Santos sued by its own shareholder in world-first greenwashing case’ (28.10.2024): https://www.theguardian.com/environment/2024/oct/28/santos-sued-shareholder-greenwashing-case
[5] ‘ASA Ruling on HSBC UK Bank plc:’ https://climatecasechart.com/non-us-case/asa-ruling-on-hsbc-uk-bank-plc/
[6] The Standard contains 14 indicators. Starting with “As investors, on a comply or explain basis, we expect each company to: Make a public commitment to align all of its climate change lobbying with the goal of restricting global temperature rise to 1.50C above pre-industrial levels.” See all indicators: https://climate-lobbying.com/wp-content/uploads/2022/03/2022_global-standard-responsible-climate-lobbying_APPENDIX.pdf
[7] ‘Tesla and US bank stocks jump in post-election trades as renewables slump’ (06.11.2024): https://www.ft.com/content/6e323b66-a873-439b-9b32-6a869f54d1b1