16 July 2020 – today we are publishing a first discussion note to engage the investment community on the role and negative impact of climate change lobbying in the transport sector. The note proposes initial ideas for investor action to address corporate political capture and is part of a series we will publish for the Corporate Lobbying Alignment Project. We welcome feedback, comments and would like to hear about your own experience.
Corporate lobbying across the automotive, aviation, shipping and downstream fossil fuel sector is blocking the transition to zero emissions transport systems. The sector is important as it drives global commerce and accounts for almost one quarter of all direct CO2 emissions from fuel combustion, and emissions are growing. Companies in the oldest US investment index – the Dow Jones Transportation Average – are among the largest transport and logistics companies in the world and understand how to decarbonise their businesses. But the sector continues to lobby for the status quo rather than for the change that is required. As the coronavirus pandemic continues to expose weaknesses in the business model of many companies, investors have a unique window of opportunity to engage with the transport sector to change behaviour.
The ability of corporate lobbying to subvert public policy aims and climate policy and to amplify sector specific risks is well documented by the OECD, the IMF and other global players. Investors committed to climate targets, Principles for Responsible Investment signatories and for investors who are building an investment thesis around the energy transition will find it particularly important to address corporate lobbying on climate-related themes from a fiduciary perspective. Our note shows how lobbying undermines the very risks these investors seek to manage.
When companies lobby to delay or block progress on aviation, shipping, and automotive emissions standards or when they deceive market participants (in the case of VW), there are consequences for investor returns. It is also a reputational risk to invest in companies who overtly and covertly undercut the decarbonisation of transport and other sectors.
Beyond direct lobbying of government officials, companies channel messages and research through well-established think tanks to provide legitimacy, and finance academic research to help subvert public policy aims on climate change and in other areas. The OECD identifies “smoke screens” as one of the most common methods of corporate influence. Smoke screens are coordinated attempts to divert discussion away from the initial issue at hand as well as funding research and organisations to advance private agendas that undermine progress on long-term climate goals. Examples of the use of smoke screens include the transport industry and their fossil fuel peers arguing in favour of gas, particularly renewable gas and hydrogen as replacement fuels, instead of full electrification of all fleets by 2050. Directly blocking legislative action on the implementation of stricter emissions targets in all transport sector segments is another common approach at the state level in the US and in North America and Europe at the national and regional level.
These practices mostly circumvent public and regulatory scrutiny. They evolve constantly – see the full note for more data on lobbying practices. Investors can and should address these issues by working together, and bringing their stewardship and legislative affairs tools to bear at the sector and company-level.
Opportunities to address lobbying in the transport sector with forceful stewardship
Investors have a number of tools at their disposal to address the risks brought on by corporate capture. They can require more information in order to better assess the alignment of corporate lobbying practices and trade association conduct with publicly stated emissions reductions trajectories. But a robust investor response to corporate climate lobbying must move beyond disclosure requests. Our discussion note describes three first steps that engaged investors can take to begin to address the risks linked to corporate policy capture:
- Investors working with initiatives including the Transition Pathways Initiative and Climate Action 100+ can publish their engagement records with transport sector companies on the issue of lobbying to enable learning across the wider UN-PRI membership group and beyond. Investors need to understand the information they can demand from companies on their lobbying record. More transparent sharing of existing information would be an important starting point to achieve this.
- Investors in the largest automotive, aviation and shipping companies should request companies disclose the processes in place to review and proactively manage membership of industry associations and other third-party organisations where lobbying positions do not align with the company’s stated climate policies and positions.
- Investors should request companies to indicate how their lobbying requests align with public commitments on climate action, and to indicate the list of third party organisations – including trade associations and NGOs – and individuals who are engaged on climate lobbying on their behalf.
Beyond these initial steps to enhance disclosure, investor stewardship teams have time to prepare for the 2021 proxy season. The report identifies three key opportunities for action:
- Investors should prepare to bring shareholder resolutions on corporate climate lobbying alignment for the 2021 proxy season in a systematic way to support systematic disclosure across the transport sector. These could be similar to the resolution filed at Delta Airlines in 2019.
- Investors should ask for a zero emissions roadmap for the transport sector to be published at the G20, via the Business Twenty (B20) corporate lobby group.
- Investors should engage their own in-house legislative affairs teams to develop a deeper understanding of corporate lobbying practices and how to push investee companies to limit negative lobbying on climate change and associated systemic risks.
The world’s largest fund managers have all issued increasingly confident public statements about their views on climate change. They all understand the legislative and regulatory process since investment managers are the world’s most accomplished lobbyists. Now is the time for them to act to address corporate policy capture. See the full note for more recommendations and action points.
We will hold a first online roundtable on 26 August (10am EDT, 3pm BST, 4pm CET) to discuss case studies, investor experiences to date on tackling corporate policy capture in key sectors and to share actionable ideas. We will publish more details on the roundtable later this month, and you can register your interest here for the time being.
We welcome feedback, comments, ideas and stories or anecdotes about your own experience to research ‘at’ preventablesurprises.com