The Good Lobby Tracker team convened major ESG data providers and leading asset allocators. It did so with the aim of reviewing the Tracker categories and discussing the future of investor expectations for higher quality and more consistent data on corporate political activities.
The Good Lobby Tracker is the first initiative to identify and make public an assessment of the quality and consistency of ESG ratings and data provider methodologies on corporate political activities and other forms of lobbying. This is important as ESG ratings data inform proxy voting and engagement practices by large asset owners in all markets. The data requested from companies by ESG ratings agencies sends a signal across all listed markets and provides a clear benchmark for corporate conduct, ahead of regulation.
The ESG ratings methodologies and voluntary disclosure standards assessed in The Good Lobby Tracker provide a baseline to inform both investors and regulators. The Tracker results and each of the 8 assessment categories indicate a pathway towards more consistent and comparable information disclosures across all markets.The Good Lobby team is using the Tracker results and dialogue with investors and regulators as a first step towards implementing more ambitious and effective approaches to address excessive corporate influence and associated risks.
Figure: The 8 Tracker assessment categories assess each disclosure standard or ESG rating methodology against consistent criteria and help both standards publishers and data users work towards more complete and useful information.
The Good Lobby Tracker scores methodologies used by ESG data and ratings providers alongside voluntary sustainability standards and reporting frameworks that touch on corporate political activities:
- ESG rating provider methodologies (e.g. Sustainalytics, S&P, Moody’s, RepRisk, MSCI);
- Sustainability reporting standards (e.g. GRI 415, ISSB, CDP); and
- Third-party standards on corporate political engagement (e.g. OECD/UN-PRI).
This summary takes a brief look at a couple of the issues flagged during the private roundtable, drawing on comments from selected investors and ESG data providers – if you are an investor interested in the data covered in the Tracker or a methodology publisher, please get in touch with the Tracker team today for a more details.
Political activities are financially material across industries.
It was clear from the roundtable discussion that how a company behaves politically is as important as its operations – political activities and other forms of lobbying are essential to business outcomes across all heavily regulated industries, from banking and technology to agriculture and energy. Investors and ESG data providers are at the beginning of a process of collecting and analysing this information from the world’s largest companies. The Tracker is designed to inform and accelerate this process.
Incomplete data on corporate political activities can be addressed by investors and ratings providers.
Investors in large listed and private companies understand that the political footprint and associated influence strategies deployed by corporate legal and public affairs teams are material both for a company’s financial bottom line and for broader industry-level and societal outcomes. The relative neglect of corporate political activities as an area for better disclosure and alignment by large institutional investors and groups such as the Principles for Responsible Investment (PRI) is beginning to be addressed by leading investors. So far, it is on the issue of climate change where investors have done the most work to fill-in information gaps and update expectations on disclosure and the alignment of corporate lobbying conduct with public climate commitments. New initiatives and company efforts, such as those by Unilever1Unilever ‘Climate Policy Engagement Review:’ https://www.unilever.com/files/unilever-climate-policy-engagement-review.pdf , to ensure alignment of lobbying and trade association membership with the firm’s stated commitments, were flagged as one example of evolving best practices.
The expectation gap between investor expectations and companies’ inconsistent disclosure of corporate political activities should be addressed by regulators.
Alberto Alemanno, The Good Lobby founder, highlighted the opportunity for investors and data providers to work together to address the corporate political activity information gap by reframing it as market failure and missed market opportunity. Beyond market engagement, a more ambitious, public policy-led approach might focus on corporate political data as a public good, requiring regulators to reclaim a leadership role in generating and ensuring systematic management and reporting of this data.
Asset owners leading the way.
Roundtable participants heard from leading asset allocators including Aegon UK, and one of the world’s largest sovereign investors, Norges Bank Investment Management, who are beginning to ask the thousands of companies they invest in to better disclose how they engage on policy and regulatory matters across markets. Given the wide gap between investor expectations and need for more consistent disclosure of financial material political activities at portfolio companies, it should come as no surprise that shareholder resolutions on lobbying disclosure rank among the top corporate governance and sustainability-related shareholders resolutions for the 2023 proxy season2 ‘In Focus: Shareholder Proposals in the 2023 U.S. Proxy Season:’ https://insights.issgovernance.com/posts/in-focus-shareholder-proposal-in-the-2023-us-proxy-season/ .
Rising investor expectations come up against the challenge of voluntary disclosure regimes.
Yet, if company lobbying disclosure is becoming a key need for investors, corporate political data is either inexistent or scattered among a Byzantine system of different, and largely voluntary, disclosure regimes.
Investors work to address the black hole of data gaps in voluntary standards.
Given the current ‘black hole’ in voluntary disclosure of corporate political lobbying expenditures, the investor demand for such data has attracted some political support, with the US Senate Banking Committee Democrats urging the SEC to issue a rulemaking to require companies to disclose their political activities to their shareholders. Likewise, the CSRD originally asked EFRAG to develop corporate political disclosure standards.
The Good Lobby Tracker seeks to raise the bar on data quality for ESG ratings providers.
In the absence of publicly available data points, investors typically rely on a growing ecosystem of for profit initiatives such as ESG data providers (e.g. MSCI, Moody’s, etc) and nonprofits be they sustainability frameworks, such as WBA, or climate initiative such as InfluenceMap and ClimateAction100+. The 2023 edition of the Good Lobby Tracker demonstrated that the quality and quantity of data on corporate political activities and other forms of lobbying gathered by leading ESG data providers remains modest. Beyond ESG data and rating provider methodologies, the Tracker covers a number of well established sustainability reporting frameworks. These voluntary frameworks often focus exclusively on the important issue of corporate climate lobbying alignment. As a result of the narrow focus on corporate climate lobbying activities, a number of the voluntary standards and frameworks fail to provide a complete picture of a given company’s political activities and associated impact.
As more investors seek to map the impact of lobbying conduct on share values and corporate and industry risk profiles, data providers and standards publishers can draw on lessons learned on climate change to extend analysis on company practices. The roundtable dialogue highlighted a significant mismatch between growing investor demand for corporate political data and the availability of such data from the existing peer group of large ESG data providers. The data gap and associated risks appear particularly critical in relation to key issues of concern for investors in a world of enhanced market and policy risk, including:
- The extent to which company boards and general counsel exercise joined up oversight over a company’s political engagements;
- The congruence between a company’s public statements and its political conduct in core markets;
- The alignment between a company’s policy position and that of its trade associations (to avoid company’s lobbying to contradict company’s public positions); and
- Overall transparency of the company’s multiple forms of political engagement, beyond direct and indirect lobbying, including memberships of think-tanks, funding of academic chairs, etc.
Key themes for further research and analysis in 2024.
The roundtable concluded with a call for further applied research with investor partners on a process to systematically improve data quality and availability across listed and unlisted portfolios. Beyond the need for more consistent and complete data, there was a clear desire on the part of investors to see corporate conduct and best practices evolve in line with the Tracker categories. Alongside the needs of investors for this information, participants flagged the potential for data on a corporate political footprints to be acknowledged as a public good, of value to many different internal and external stakeholders. This would follow precedents on the enhanced disclosure and standardisation of corporate reporting data in machine readable formats by the US Securities and Exchange Commission and other large financial market regulators. With modest regulatory nudges, updating of voluntary standards and opening up data on corporate political activities for a wider audience is within reach.