Author: Jasmin Fraser and Jenni Ramos

Date: 18 June 2024

Lobbying is common among businesses. But where does it cross the line from well-founded engagement to greenwashing? In this blog post, we highlight how the ‘say-do’ gap – the gap between what companies say they are doing and what representatives of their business or their trade associations are separately doing behind the scenes – can put companies at risk of allegations of greenwashing. 

What is corporate climate lobbying? 

Corporate lobbying can take many forms. It can be direct (e.g., actively trying to influence the policy agenda) or indirect (e.g., through trade associations). It can also be transition-aligned (e.g., progressing the global economy towards net zero by advocating for ambitious climate policies) or non-transition-aligned (e.g., representing business interests in a way that may hinder transition efforts). Where lobbying activities are referred to in this blog post, we refer to non-transition-aligned, direct and indirect lobbying. 

Lobbying can be a legitimate method to influence government decisions and provide stakeholders the opportunity to participate in public decision-making processes. This can be done by providing valuable perspectives, data and insights, as noted by the OECD Recommendation of the Council on Transparency and Integrity of Lobbying and Influence. 

However, where lobbying activities are conducted without transparency and integrity, this can lead to “inequity in influence”. With respect to climate change, lobbying against climate policies, regulations and laws can risk hindering progress, and set a dangerous precedent whereby climate action is aligned with corporate interests rather than a just transition to net zero. 

The OECD reported that these types of lobbying activities have blocked action by governments globally to implement regulations on climate change. The OECD’s Global Corporate Sustainability Report 2024 noted that almost one-third of companies with self-declared lobbying activities on climate-related policies belonged to the resource transformation, and extractives and mineral processing industries – industries with the highest GHG emissions. InfluenceMap reported that pressure on EU policies in 2020-2023 from the meat and dairy sector resulted in policies being significantly weakened or stalled (e.g. the Farm to Fork Strategy, and the revision of the Industrial Emissions Directive which regulates pollutant emissions from European farms). The picture is similar in the automotive industry, where lobbying threatens the transition to electric vehicles. This story represents a systemic risk to global progress against climate change. 

What about nature?

Lobbying activities are not only related to climate; some of the largest companies and their industry associations are also engaging in biodiversity policy and regulation, either aligned with the nature-positive transition or non-aligned. Research from Influence Map demonstrated that the world’s largest twenty companies lack transparency concerning their biodiversity-related advocacy, maintaining membership in industry associations actively pushing to delay, dilute and/or block critical biodiversity policies. For more information on biodiversity risks and implications for directors, see our report here and independent UK and Australian expert legal opinions.

What are the risks to companies involved in climate lobbying? 

InfluenceMap has reported that of 293 companies from the Forbes 2000 list, nearly 60% of those with net-zero emissions or similar climate targets are at risk of “net zero greenwash” due to their policy engagement. Greenwashing can occur as a result of untrue or misleading statements about the environmental performance or impact of a business, product or service. It can occur through several channels, including marketing materials, reporting, communications and public statements. 

The Australian Centre for Corporate Responsibility (ACCR) found that of 50 companies, including BHP and Rio Tinto, there was a significant gap between companies’ asserted stances on climate policy and their advocacy efforts. Where companies are lobbying against climate action in contradiction to their public statements, a clear line can be drawn to greenwashing. 

Where companies are reporting climate lobbying activities, questions arise as to what extent activities are being disclosed. Companies might be at risk of allegations of greenwashing for omissions where it is unveiled that companies are cherry-picking or selectively disclosing certain lobbying activities. For example, the ACCR has revealed that Shell – which has been reporting on its lobbying since 2019 – has omitted from its reporting its lobbying efforts in emerging markets, where its LNG growth strategy is primarily focused. Its disclosures thus paint a picture of Shell’s lobbying activities far from reality. 

Corporate lobbying greenwashing can impact the credibility of companies and access to finance, influence investor and consumer decisions, and lead to reputational risks and shareholder activism. 

Reputational risks: Companies who appear to delay or block effective climate policy will face increasing reputational risks from consumers, investors, and other stakeholders. A misalignment between public commitments and lobbying practices can reduce public confidence and trust in both companies, the government and government officials. 

Investor expectations: Climate change is now understood as presenting foreseeable financial and systemic risks (and opportunities) over short, medium and long-term investment horizons. As such, investors are increasingly concerned about corporate climate lobbying which might harm investments, especially given the asymmetry of information about climate lobbying activities between corporations and investors. Reviewing lobbying activities is becoming standard practice, especially for investors. 

In 2018, the Principles for Responsible Investment outlined its expectations on corporate climate lobbying, highlighting that companies should be consistent in their policy engagement and ensure engagement conducted on their behalf is aligned with a safe climate. This statement was signed by 74 investors with more than USD 4.5 trillion in assets under management. In 2022, investor groups whose members managed a collective $130 trillion launched the Global Standard on Responsible Climate Lobbying (the Global Standard), outlining expectations to be followed on a comply or explain basis.

Falling short of investor and key stakeholder expectations may lead to an outflow of capital where investors consider that a lack of, or insufficient disclosures, is misaligned with investing mandates. 

Investor engagement: Nature Action 100 and Climate Action 100+ expect companies to align their political engagement with biodiversity and climate goals. More than 200 institutional investors – responsible for around $28 trillion in assets under management – represent Nature Action 100. More than 700 investors – responsible for around $68 trillion in assets under management – represent Climate Action 100+. For the 2024 proxy season, Climate Action 100+ called on companies to report on climate lobbying practices. Nature Action 100’s benchmark indicators require alignment of lobbying with the Kunming-Montreal Global Biodiversity Framework (GBF).

There have already been numerous shareholder resolutions filed requesting disclosure of lobbying positions. In May this year, ACCR and Legal and General Investment Management co-filed a resolution for Nippon Steel Corporation, one of the largest steel makers globally, requesting disclosure of “climate-related and decarbonisation-related policy positions and lobbying activities globally, including its own direct lobbying and industry association memberships, and review these for alignment with the Company’s goal of carbon neutrality by 2050.” The reasons stated for the proposal included the importance of strategy and managing risks to protect company value and ensure long-term value creation. At the time of writing, this resolution has not been voted on.

Other companies that received shareholder proposals for climate lobbying reporting include Australian and US energy companies Santos Ltd, and NextEra Energy Inc. In the US 2024 proxy season, approximately 29 lobbying-related proposals have been filed and have so far received the most support of socially-oriented proposals this proxy season. Nine of these mentioned climate in the title, including against companies such as Meta, Bank of America, American Express, and Boeing, most of which received as much as 24-32% votes in favour. Some of the general lobbying disclosure requests, such as at Amazon, Goldman Sachs, Occidental and Truist (which received 41.17% support), were not limited to climate but mentioned climate policy positions (including membership of a trade association that opposed the Inflation Reduction Act) in supporting statements. 

There are climate lobbying proposals scheduled in June for Google, Caterpillar, MasterCard and Toyota. Climate lobbying proposals at Renault, Shell and TotalEnergies have been “withdrawn for agreement” following negotiations with the company (e.g., to undertake a review of climate policy and industry association). Last year investor engagement prompted Danone to improve its climate lobbying disclosure.

Lobbying disclosure is increasingly seen as good governance. Where companies do not disclose, or disclosures are insufficient, this could lead to investors voting against the board. Of the two proxy advisory firms controlling 97% of voting advice to institutional investors, Glass Lewis will generally recommend voting for proposals to request climate-related lobbying information while ISS recommends voting on a case-by-case basis. The big three asset managers’ 2024 policy voting positions require varying descriptions of ESG-related lobbying information.

Practical considerations 

With greenwashing allegations and litigation on the rise, there is an increasing demand for companies to be transparent about their lobbying. Directors have general duties of loyalty or promoting the success of the company, and care and diligence (for more information, see our Primer). In some circumstances where lobbying is inconsistent with companies’ statements about their climate commitments, directors risk being found liable for breach of the oversight aspects of the duty of loyalty, such as in the U.S.

In its June 2023 updated version of the Guidelines for Multinational Enterprises on Responsible Business Conduct, the OECD included a recommendation that enterprises should “[e]nsure transparency and integrity in lobbying activities, and refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to human rights, environmental, health, safety, labour, taxation, financial incentives, or other issues.” Standards such as this and the Global Standard form part of the context of market standards and best practice corporate behaviour which inform the standard by which directors are assessed when performing their duties.

The Board plays an important role in overseeing and prescribing the lobbying activities conducted and/or financed by the company (Principle 4 of the Global Standard). Lobbying can create concerns that companies are advocating for policies which support the Board’s short-term interests, which might conflict with the long-term sustainability strategy of the business and publicly stated sustainability positions, creating reputational risk and impacting social licence to operate. Such actions may even amount to a breach of directors’ duties. It is therefore recommended that the Board specifically oversees a framework that addresses any misalignment (Principle 8 of the Global Standard) and sign off on an annual review of alignment between lobbying and its climate goals (Principle 9 of the Global Standard).

Boards might want to consider the following:

• Alignment: are climate and nature lobbying positions of the company in line with the company’s sustainability and business strategy and actions, universal principles and values, and public statements?  
• Materiality: is the company lobbying on issues that affect its organisation and stakeholders? 
• Stakeholder engagement: is the company open and responsive to stakeholders in developing and debating their climate and nature lobbying positions? 
• Reporting: is the company transparent about its climate and nature lobbying positions and practices (e.g., on who, the objectives of such activities, and the policy issue or legislation concerned)? Is this information publicly available and easily accessible?  
• People: does the company know who is conducting climate and nature lobbying activities on its behalf and where its spheres of influence are?  
• Processes: are management systems and guidelines in place to ensure that a company’s practices are effective and align with its core strategies and policies? Is there a system in place to continuously audit climate policy engagement (direct and indirect)?

(Adapted for climate and nature from the UN Global Compact’s 6-step “health check”)

Investors might want to consider using the clauses and checklist provided by the Chancery Lane Project in London to enable information to be obtained from a corporate counterparty to ensure that the corporates lobbying activities are aligned with Paris Agreement goals. Investors should engage with companies and encourage them to disclose any climate lobbying activities as part of the drive to ensure corporate accountability.