Millions of consumers, employees and investors are seeking to align their purchases, jobs and investments with their values. They want transparency and a clear understanding of how the brands they consume, work for or invest in are contributing to sustainable development.
Amid such growing and unparalleled scrutiny, companies are increasingly being held responsible for their corporate behaviour – notably their environmental and social footprints. Yet there is one impact that is rarely discussed since it remains hidden to the public eye. This is the ‘political footprint’ companies leave behind as a result of their corporate political activities – whether through lobbying or political contributions – and which often contradict their public statements.
As a result, a company that appears to ‘walk the talk’ on climate change by committing to reduce its greenhouse emissions may at the same time be lobbying against greater regulation of such emissions. A pharmaceutical company that publicly supports patient access to affordable medicines could simultaneously be funding a trade association that is defeating lower price initiatives. Even a progressive company that publicly supports LGBT+ issues could also be funding a political candidate opposed to gay rights.
The misalignment between corporate lobbying with companies’ stated commitments to purpose, values or stakeholders is one – possibly the – major factor underpinning a lack of progress on numerous critical issues, ranging from a failure to act on the climate emergency to offshore tax evasion. This phenomenon also pushes down citizens’ perceived trust in government.
Existing reporting
Despite the scale of its negative impact on public policy, corporate political conduct largely escapes existing sustainability and environmental, social and governance (ESG) frameworks. However, there has been the emergence of some incipient forms of voluntary corporate political reporting, such as Global Reporting Initiative (GRI) standard 415, and within some ESG ratings, of the like provided by Moody’s, S&P, Dow Jones and so on. Some of these initiatives already encourage companies to share information beyond legally mandated disclosures, such as those required by lobbying regulations, and solicit more granular reporting on companies’ spending and the issues they lobby on.
Such frameworks offer an unprecedented accountability loop for the role of companies in political activity. This may in turn lead companies to reassess their political ‘exposure’, due to the misalignment between their public statements on policy issues that are material to their strategy and their actual corporate political conduct – for instance, through trade associations. A failure to do so could in the future reduce the company’s eligibility for a specific investment class or loan.
At the same time, most of the information collected by these voluntary initiatives remains proprietary in nature and, as such, doesn’t automatically translate into greater public accountability. While ‘naming and shaming’ – as successfully practiced by organisations such as Influence Map and the Center for Political Accountability Reports – is generating new social norms of business conduct, these efforts alone may not be sufficient to prompt a reassessment of corporate political behaviour at the required scale. However, this looks set to change.
Mandatory reporting?
As regulators in many jurisdictions – including the EU, the UK, the US and Japan – are contemplating the integration of mandatory standards for certified ESG reporting into conventional financial reporting, it is plausible to imagine that the disclosure of corporate politically-related information might soon be legally mandated.
Take the most prominent illustration, the proposed European Financial Reporting Advisory Group business conduct draft standard, which is set to be made binding under the EU Corporate Sustainability Reporting Directive. This standard requires the disclosure of information on both political contributions and lobbying activities, and goes well beyond what is currently required by most existing voluntary standards, such as GRI 415.
Global disclosure standard needed
Yet by focusing exclusively on lobbying and political contributions, this new standard may fail to capture – like virtually all existing voluntary initiatives do – other subtler forms of corporate political influence, such as the participation in governmental expert groups, the funding of think tanks and philanthropic donations.
For this, a global disclosure standard for corporate political activities might be needed, something the International Sustainability Standards Board – as the leading global sustainability standard-setter for the financial markets – could be ideally placed to design, through its current work on creating a global framework for sustainability disclosure requirements.
Despite the limitations inherent in existing sustainability and ESG frameworks, their scope is expanding to accommodate accountability channels for corporate political conduct. While most of the corporate politically related data gathered by these voluntary initiatives is not available to the public, it is driven by investor demand and looks set to grow over time. Moreover, the mushrooming of these voluntary initiatives is generating multiple standards that will likely influence ongoing sustainability standard-setting and may ultimately become integrated into mandatory standards.
As the demand for political transparency is set to grow, it may well be in companies’ own interests to initiate calls for a mandatory framework to govern corporate political activity.
Alberto Alemanno is the Jean Monnet professor of law at HEC Paris and founder of The Good Lobby.
This article first appeared in Sustainable Views, a Financial Times Group's platform that focuses on ESG policy and regulation.
