The Church of England Pension Board (CEPB), Swedish government fund AP7 and EOS, the stewardship arm of Federated Hermes, have called on the European Commission to include third-party lobbying disclosures in its proposed corporate sustainability reporting regime.
In separate but overlapping consultation responses, all three highlighted that the current proposal “overlooks one key element regularly highlighted by the investment community and a key element of the Global Standard for Responsible Climate Lobbying: lobbying by third parties, particularly industry associations”.
The trio recommend amendments to article 14 of European Sustainability Reporting Standard (ESRS) G1 on business conduct to include “both independent lobbying and lobbying via third parties”.
The current draft states that an “undertaking shall consider the alignment between its public statements on its material impacts, risks and opportunities and its lobbying
activities as stakeholders value alignment between the two”.
Use of third-party groups like industry associations was described as “a critical component to most corporate policy engagement strategies”, by AP7, CEPB and EOS, with the asset owners adding that it is a component that allows companies “to maintain public distance from their most regressive policy positions, which are outsourced to such groups”.
“The importance of climate lobbying has become firmly established as a new norm on the sustainability agenda,” AP7 wrote, “but there is still much to do before negative climate lobbying is brought to an end”.
AP7 added that it had “blacklisted some corporations based on climate policy engagement criteria”. The investor had not responded to a request for more details on this at the time of writing.
Similar actions have been taken by Norway’s Storebrand Asset Mangement, which excluded several firms in 2020 over their climate lobbying, including US oil and gas giants Exxon and Chevron.
AP7, CEPB and EOS all stressed in their ESRS responses that information on third-party lobbying is material to investors, in demand by them, and that the disclosure of such information has precedent in other reporting frameworks, including those overseen by environmental data body CDP and the Transition Pathway Initiative.
But the trio also highlighted the deficiencies of voluntary disclosures, which they said have “proven misleading or incomplete”.
They cite an analysis undertaken by think tank InfluenceMap, which found that less than 5 percent of lobbying disclosures made by over 450 companies via CDP in 2021 fully disclosed their policy engagement activities. Moreover, over 80 percent provided disclosures that were “largely unsatisfactory, incomplete or hard to access.”
The trio concluded that this demonstrates that “disclosure via these voluntary frameworks tends to be seriously insufficient, with companies failing to provide robust and transparent information on their policy engagement activities to the investment community”.
Climate lobbying has been a key focus area for AP7 and CEPB in recent years. The duo collaborated with BNP Paribas Asset Management on the creation of the Global Standard on Responsible Climate Lobbying, which was released last year.
Last month, the duo reversed their opposition to the chair and CEO of National Grid, following the pledge from the UK energy firm to review the alignment of its trade associations with its own decarbonisation goals.
The European Commission’s consultation on the ESRS closed on Friday after just a month. Despite that tight timeframe, more than 600 responses were received.
One of the key bones of contention raised by investor groups, including the Principles for Responsible Investment (PRI) and the European Fund and Asset Management Association (EFAMA), was the decision to make all the disclosure requirements under the ESRS subject to materiality assessments.
That decision marked a significant departure from the original ESRS proposal by EU standards body EFRAG, which said that all climate-related reporting as well as reporting that stems from other EU legislation – such as the indicators relevant to its anti-greenwashing law Sustainable Finance Disclosure Regulation (SFDR) – would be mandatory.
CEBP echoed this concern in its submission, stating that the shift away from mandatory reporting on key information linked to the existing SFDR would make it harder for investors to meet their mandatory reporting obligations.