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Investors focus ESG on contrast between climate words and actions

Closer look at political spending is planned

Congress prohibited the Securities and Exchange Commission from requiring political spending disclosures last year.
Congress prohibited the Securities and Exchange Commission from requiring political spending disclosures last year. (Bill Clark/CQ Roll Call file photo)

Investors will ramp up their scrutiny of corporate political spending this spring with a specific focus on whether companies’ advocacy and lobbying align with the climate goals of the Paris Agreement.

The increased attention is coming from asset managers targeting environmental, social and governance issues, as well as advisory firms that are gearing up for proxy season, the portion of spring and early summer when most companies hold annual meetings.

Among the most influential of the asset managers is The Interfaith Center on Corporate Responsibility, a coalition of faith-based and secular investors representing more than $4 trillion in managed assets. The group this month issued guidance for its members to engage with companies on climate-related lobbying — and to make corporations more transparent about their political advocacy.

Many companies, especially in the tech, retail and utility sectors, broadly support the Paris Agreement and efforts to combat climate change, but some investors say the public support doesn’t completely align with political activities.

The Paris Agreement’s overarching goal is to curb global warming, limiting it to an increase of 1.5 degrees Celsius. The treaty’s parties and signatories, including the U.S., pledged to make meaningful contributions to reducing greenhouse gas emissions, fostering climate resilience and making investments that support decarbonization. Countries are required to update their progress in 2025.

“While corporations are not solely responsible for rising global temperatures, many high-emitting and high greenhouse gas-impact companies have spent years, or decades, intervening in regulatory and policy discussions … to delay the regional, local, and global rules that would enable a less disruptive energy transition,” ICCR said in its guidance.

“Investors — because of some of this history — now believe companies have a critical and urgent role to play in reversing this course,” it said.

Companies have increased their disclosures of lobbying information in recent years. The Jan. 6, 2021, attack on the Capitol prompted major companies to pause political contributions and reexamine their policies, and gave activist shareholders and other advocates more leverage to pressure companies to improve their transparency around their advocacy.

According to the Center for Political Accountability and the Wharton School of the University of Pennsylvania, nearly 78 percent of companies in the S&P 500 index fully or partially disclosed political spending last year.

However, asset management firms and investing coalitions interested in ESG issues now want corporations to explain how their political spending aligns with their publicly stated values and business goals, such as reducing greenhouse gas emissions.

On top of its suggestions, ICCR called on major corporations to reevaluate their in-house advocacy from government affairs teams, as well as their membership and participation in trade associations, grassroots organizations, think tanks and media campaigns.

“Of particular concern are trade associations and other policy organizations that speak for businesses but too often present major obstacles to addressing the climate crisis,” ICCR said. “Some companies rely on such entities to launch public relations campaigns to hamper climate progress, and then disassociate those efforts by noting that ‘companies don’t always agree with their trade associations on every issue.’”

Company vs. trade group

The investing coalition encouraged companies to be more proactive by independently auditing or verifying trade associations and other third parties’ policy stances and advocacy regarding climate legislation and regulations. 

“Seeking additional disclosures from each trade association, policy nonprofit and related entities would greatly assist the audit or assurance process, and bring credibility and transparency to the political engagement process within the corporation,” ICCR added.

Shareholder resolutions on corporate political influence made up nearly 1 in 5 proposals under the environmental, social and governance umbrella that were voted on in 2022.

Zevin Asset Management, an ESG-focused firm with approximately $783 million in assets under management, is again pursuing a resolution asking Google parent Alphabet to report how it evaluates memberships in trade associations that have lobbied heavily against policies that address climate change. Last year, a similar resolution from Zevin obtained 18.8 percent of votes cast in support and more than half of independent shareholder votes. 

“We believe regular examination of the alignment of lobbying activities (direct and indirect) with corporate public commitments and policies is an increasingly important requirement of strong corporate governance,” Marcela Pinilla, director of sustainable investing at Zevin, said in a note this month to clients.

Institutional Shareholder Services, the country’s largest proxy advisory firm, recommended in its 2023 proxy voting policies that investors vote for proposals requesting greater disclosure of political contributions and trade association spending policies and activities. However, the firm stopped short of asking companies to explain how lobbying efforts match their rhetoric on climate change mitigation or other public policy issues.

ISS recommended investors “generally vote case-by-case on proposals requesting greater disclosure of a company’s alignment of political contributions, lobbying and electioneering spending with a company’s publicly stated values and policies.” 

Investors should consider multiple factors, such as discrepancies between a company’s lobbying and its publicly stated values, as well as “recent significant controversies related to the company’s direct and indirect lobbying, political contributions or political activities,” ISS said.

Shareholder resolutions remain one of the few avenues to pressure companies to improve disclosure on political spending. The fiscal 2023 omnibus spending package has a policy rider that prohibits the Securities and Exchange Commission from requiring political spending disclosures for public companies despite efforts from Democrats to remove the language. 

That provision blocks the agency from any rulemaking that mandates companies disclose their political contributions, contributions to tax-exempt organizations or dues paid to trade associations.

The House Rules Committee last summer removed three such “dark money” riders from the Financial Services appropriations bill, which the House passed as part of a package of six spending bills. However, opposition from Senate Republicans forced Democrats to make concessions on the final version of the omnibus.

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