Investors can transform political engagement into a lever for progress on sustainability. Investors should assess the extent to which portfolio companies’ political engagement aligns with investors’ long-term interests and responsible investment objectives, as well as how it contributes to informed public policy-making.

Along with Chronos Sustainability, the PRI has researched the current state of responsible political engagement (RPE) stewardship. The interviewees included investors, think tanks and civil society organisations.

This article covers the following points:

  • how investors identify and assess political engagement activities;
  • how investors integrate political engagement into their stewardship activities; and
  • challenges to engaging on RPE with investees.

To read more about RPE and why it is important for investors, see our recent report, The investor case for responsible political engagement

Investors’ stewardship practices

1. Assessing RPE is usually part of wider engagement efforts

The interviews found that RPE does not tend to be treated as a standalone issue; rather, investors engage companies on the subject as part of an ESG-related topic. Climate change, for example, is an area that lends itself well to RPE engagement: climate change is a priority for investors, and tools and research, such as InfluenceMap, enable investors to identify how companies are lobbying and contributing to public policy.

Investors focus on RPE when it is clear that corporate political engagement is impacting important aspects of public policy. In the US, for example, investors have long focused on corporate political contributions and, shareholder proposals asking for improved disclosure on the topic are common.

Our interviewees expressed interest in engaging on other topics, such as pharma, healthcare, tech, and diversity, equity and inclusion. However, these investors consistently identified two reasons why RPE has generally not been well integrated into engagement activities on ESG issues (with the notable exception of climate change):

  1. Resourcing – RPE would not be prioritised over other ESG issues when investors have limited capacity to engage.
  2. Tangibility – Without being directly linked to a specific theme such as climate change, companies often fail to see the relevance of RPE for investors.

2. Investors focus disproportionately on direct lobbying

Investors tend to focus on (i) the investee company’s direct engagement with policy makers, and (ii) the engagement conducted by trade associations on behalf of companies. However, investors agreed almost unanimously that engagement on RPE should encompass other activities, such as indirect lobbying.

Direct lobbying  involves direct contact between the lobbying entity and public policy decision-makers. 

Indirect lobbying  is when the lobbying entity seeks to influence public policy indirectly by shaping and mobilising public opinion e.g., via social media.

The most significant barriers to investors engaging on indirect lobbying are the lack of clear definitions, the limited corporate disclosures on indirect lobbying and the general lack of useful research to underpin engagement.

These barriers limit investors’ ability to challenge or probe companies’ approaches. Some investors suggested that indirect activities may become a focus once sufficient progress has been made on more direct corporate and trade association lobbying. 

3. Investor engagement varies geographically

Investors tend to focus their RPE activities in countries where they physically operate as they are more likely to be familiar with the local political context and relevant policy issues. Also, companies with international operations tend to focus their reporting of lobbying activities on specific geographies, with a particular emphasis on their home country and on jurisdictions where specific regulations apply. This local focus and knowledge, while helpful, can hinder development of more comprehensive global expectations.

Across the world there are different laws on corporate disclosure. For example, in the US, the Lobbying Disclosure Act requires companies to disclose their lobbying expenses every quarter, providing investors with a starting point to engage on the subject and to request more information on why these lobbying expenses were made.

Where investors have set out global RPE expectations, these have tended to focus on systems and processes, such as requiring companies to demonstrate alignment of RPE practices with stated company commitments or positions, rather than specific outcomes.

Challenges and next steps

 1. ‘Good’ responsible political engagement is not well defined

When investors engage on RPE, the aim is to ensure corporate political activities align with stated company positions and agreed societal sustainability goals. However, to date, successful RPE engagements have tended to be seen as those that improve transparency in reporting, mostly with a view to discourage negative lobbying.

Investors recognise that transparency is important but only an initial step. Transparency does not guarantee a change in outcomes; however, lack of transparency makes it extremely difficult to review previous political activities or the associated outcomes.

Investor interviewees were clear that companies should have robust governance processes to ensure they align their lobbying with their sustainability policies, and that they should lobby in a positive way i.e., to bring about positive, real-world outcomes, and report on those efforts too.

When engaging with companies, investors reported that they are commonly asked by investees for peer case studies to understand good practice (i.e., what a good trade association review process and report look like). However, a number of investors identified a lack of applicable good case studies that they can share with companies.

Several investors commented that they are reluctant to engage with companies on RPE because of their lack of expertise on what RPE would look like for specific topics (e.g., what constitutes an acceptable advocacy position) and, therefore, they do not formulate a clear ask or expectation for the company.

RPE guidelines and principles, such as the Global Standard on Responsible Climate Lobbying, provide practical definitions and an assessment framework for investors to use.

2. Investors have limited resources

RPE faces the same practical engagement challenges as other ESG issues: namely, investors have constrained resources and must choose between competing priorities. In practice, investors prioritise those issues (i) that affect a significant part of the portfolio (or are systemic), (ii) where the actions to take are clear, and (iii) where supporting resources (research, data, and collaborations) make it easier to integrate the issue into investors’ stewardship practices. RPE’s lack of clear definitions, measurable impact, and available research and tools currently limit its potential to become a priority for investors.

Interviewees commented that RPE can be a complex issue to engage on, but that it does not necessarily need to be a standalone issue. By integrating RPE into other engagement priorities they can mitigate some of the challenges around resources. 

3. Investors find it difficult to assess the effectiveness of RPE

One of the consequences of RPE complexity is that it is difficult to measure investors’ impact in mitigating negative real-world outcomes or in shaping positive outcomes. It is difficult to establish a clear link between investor engagement, changes in corporate lobbying activities and the wider impact on the policy landscape.

A number of investors commented that they are increasingly being asked by their clients to measure success of engagement outcomes. However, reporting on RPE outcomes remains particularly challenging, with success – where it can be identified and demonstrated – often taking time to achieve, and the need to consider RPE as systemic issue that affects all ESG areas.

However, some progress can be seen. For example, companies are increasingly disclosing information about their climate-related political activities, and this can be linked in part to investors’ attention on the topic. Increased engagement and disclosures reflect the widely held view among investors that corporate lobbying on climate change presents a systemic risk to portfolios and that companies have a role to play in advocating for effective policy solutions.

4. Investors need more resources, research and tools

To engage effectively with companies, investors need:

  • methods to assess the legality and appropriateness of RPE activities within a specific jurisdiction;1  and
  • resources to assess the impact of RPE activities on sustainability outcomes.

The prevalence of engagement on political donations and climate change demonstrates how important resources and research are for investors. In relation to political donations, much of the engagement is shaped by third-party research (e.g., CPA-Zicklin Index and OpenSecrets).

Similarly, in relation to climate change, interviewees highlighted the benefit of having i) a clearly defined overarching goal that companies could be expected to align RPE activities with (e.g., the Paris Agreement), ii) benchmarks to assess companies’ RPE activities (e.g., the Global Standard on Responsible Climate Lobbying), and iii) credible data and research resources (e.g., InfluenceMap’s research) on companies’ RPE activities and the positions of trade associations.

Effective and comprehensive company disclosures (covering company positions, lobbying activities, governance systems, etc.) alongside supporting external research and tools, can greatly mitigate investors’ lack of expertise and help them hold companies to account.

Next steps

The investors interviewed had a clear understanding of the importance of RPE for their investment portfolios and of the potential for corporate political engagement to have a significant impact on ESG topics. Investors expressed desire to improve the quality of engagement with companies, and to integrate RPE into other ESG areas besides climate change.

To support investors, we will:

  • include RPE-related considerations in Advance, our collaborative stewardship initiative for human rights and social issues and, we will explore opportunities to integrate RPE into other priority thematic engagements;
  • alongside partner organisations, support investor members of Climate Action 100+ to evaluate and engage portfolio companies on Paris-aligned climate lobbying practices; and
  • use the findings from this research to better inform ourselves as to how we can support investors on this topic, for example by providing further stewardship guidance on RPE and other ESG issues.

Further resources

This article has been prepared by Betina Vaz Boni and Sebastien Akbik from the PRI and Robert Black and Dr Rory Sullivan from Chronos Sustainability.

We would like to thank the asset owners, asset managers and other stakeholders who contributed to the research that underpins this article.

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