European investors open to taking legal action on corporate lobbying

An update on an emerging issue for European investors and companies

“We haven’t taken any companies to court yet… but we are open to it, we haven’t closed that door,” says Charlotta Dawidowski Sydstrand, Sustainability Strategist at Sjunde AP-fonden (AP7).

She was updating RI on the European climate lobbying initiative the Swedish buffer fund launched with the Church of England Pensions Board and BNP Paribas last October, which is backed by a coalition of investors representing $2trn in assets.

To date 10 of the 55 European companies targeted have agreed to “undertake a review of their trade associations and to setting up robust governance processes,” she said.

They are miners: BHP, Rio Tinto, Anglo-American, Glencore. Oil and gas: BP, Shell, Equinor. Utilities: RWE. Cement: Heidelberg Cement. Chemicals: BASF.

“What is so positive with these 10 companies that have committed is that they represent a variety of industries,” Sydstrand said, adding that initiative initially focused on the 17 worst performing companies.

These were then narrowed down to six German companies to be targeted with shareholder resolutions. This was done out of practicality, according to Sydstrand, as the filing of resolutions is a “very cumbersome process”.

“We [eventually] filed resolutions at five companies in Germany – BASF, RWE, BMW, Volkswagen and Daimler – we were supposed to file at Heidelberg too but they committed to doing what we had asked before we filed.”

All five companies, however, rejected the resolutions on legal grounds, questioning whether it fell “within the competence of the AGM”.

Sydstrand told RI that the initiative had taken “a lot of legal advice” before filing.

“We are comfortable that our legal advice is correct but it needs to be tested in court since, currently, it is just one opinion against another. This has never really been done in Germany before, so we are treading new ground.”

Sydstrand added that while the initiative has left the door open to legal action next year she acknowledged that it would be “a big process”.

Of the German target companies, she said car giants BMW, Volkswagen and Daimler “weren’t very helpful or collaborative”.

Lobbying focused think-tank InfluenceMap identified the European Automobile Manufacturers’ Association as the “most oppositional” trade body to “ambitious climate policy action” in its latest report.

Asked why the 10 companies decided to disclose information on their climate lobbying now, Sydstrand said: “I am not sure that they have ever got the question before. In the US there has been a lot more focus on lobbying but it is an emerging issue in Europe.”

RI recently covered the big votes on lobbying at US firms.The disclosure was also driven, she said, by the “clear expectations” set by the initiative and the examples of good practice by companies like BHP and Shell.

The London School of Economics (LSE) has been commissioned by the initiative to work with InfluenceMap to develop a framework to evaluate the lobbying disclosures expected from the companies next year.

“We are long-term, patient owners and we will keep asking these questions, we are not going away.”

InfluenceMap’s Executive Director, Dylan Tanner, speaking to RI late last year, said that since the 2015 Paris Climate agreement, which was also supported by many investors and businesses, many companies have simply shifted their opposition “away from the spotlight” and through trade groups in an orchestrated effort to undermine climate action.

But Sydstrand, speaking in a European context, told RI that she thinks the issue is a lack of oversight “rather than them consciously double-playing”.

“We need to be humble to the fact that it is an emerging issue, it is a new area of corporate responsibility and companies are less used to talking about their public affairs than they are, say, about their operations; the same also goes for investors.”

“A lot of the times there might be a misalignment between industry associations and the companies’ own policy on climate change without the companies really knowing about it.”

What are the next steps? Sydstrand mentioned “positive modelling of companies”, that is, highlighting companies “who have something to gain from better climate legislation” to counter-act negative climate lobbying.

“We’ve seen examples of this in Sweden,” she said, “companies like IKEA and H&M, who collaborated with WWF on a seminar in the European Parliament to support higher policy ambition on energy efficiency and renewables.

“So there are companies supporting this and they could be the next step.”

She also told RI that the initiative has increasingly fallen under the umbrella of Climate Action 100+, the investor engagement initiative backed by more than 300 investors, but with a “higher priority” on lobbying.

Sydstrand is determined to see the project through: “This is a long-term project and we will continue the dialogue and see what happens at the next AGMs but we are open to filing again, we are long-term, patient owners and we will keep asking these questions, we are not going away.”