A Call by Investors on US Companies to Align Climate Lobbying with Paris Agreement

Barbara Grady is the communications manager for the California Program at Ceres. This post is based on her Ceres memorandum. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here) and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

With a combined $6.5 trillion in AUM, investors urge companies to ensure corporate and trade association lobbying are consistent

On September 16, 2019, 200 institutional investors with a combined $6.5 trillion in assets-under-management announced they are calling on 47 of the largest U.S. publicly traded corporations to align their climate lobbying with the goals of the Paris Agreement, warning that lobbying activities that are inconsistent with meeting climate goals are an investment risk.

The investors said they view fulfillment of the Paris Agreement goal—to limit the global average temperature increase to well below 2°Celsius and pursue efforts to hold it at 1.5°Celsius—as an imperative.

“We are convinced that unabated climate change will negatively impact our clients, plan beneficiaries, and the value of our portfolios,” wrote the investors in a letter sent to each company in recent days.

The 47 companies are the U.S.-based corporations on the Climate Action 100+ focus list. These companies have been identified by investors as some of the largest corporate greenhouse gas emitters or so influential in their industries that they have opportunities to drive the clean energy transition.

“Climate change is one of the greatest risks facing long-term investors,” said New York State Comptroller Thomas P. DiNapoli, trustee of the New York State Common Retirement Fund. “Many companies talk the talk when it comes to building a lower-carbon global economy, but some continue to support agendas and groups that oppose the goals of the Paris Agreement. We need greater transparency and accountability from our portfolio companies. We need to know if they are lobbying—or supporting trade organizations that are lobbying—against the worldwide effort to rein in climate change.”

“Although many companies have publicly stated support for policies to stem global warming, some companies also finance trade associations that are actively lobbying against those same policies,” said Bryan Pini, president and chief investment officer for Mercy Investment Services. “Investors are concerned about this disconnect and want companies to ensure they’re not financially supporting organizations that contradict essential policy changes that are critical to a just transition to a low-carbon future.”

The letters were sent on behalf of a group of lead investors including BNP Paribas Asset Management, Boston Trust Walden Company, the California Public Employees’ Retirement System (CalPERS), the California State Teachers Retirement System (CalSTRS), Mercy Investment Services, the New York City Comptroller’s Office, the New York State Common Retirement Fund and Wespath Benefits & Investments and supported by 192 other institutional investors. They include large pension funds, mutual funds, asset management firms, religious investors, foundations and service providers.

“Climate Change has a direct impact on CalPERS’ ability to make prudent long-term investments that provide retirement security to 1.9 million members. We are proud to stand with institutional investors throughout the world, working cooperatively to advocate for business practices that deliver sustainable markets and strong, consistent returns,” said CalPERS CEO Marcie Frost.

“With this letter, we hope to bring stronger governance and greater accountability to corporate climate lobbying and to ensure that companies and their trade associations are reading from the same script. When companies say one thing and their trade associations say another, corporate reputations are put at risk,” said Adam Kanzer, Head of Stewardship – Americas, BNP Paribas Asset Management. “More importantly, these mixed messages threaten our collective ability to avoid catastrophic climate change.”

The investors call on the companies to publicly report on how they are meeting a set of Investor Expectations on Corporate Climate Lobbying, which in turn ask companies to establish meaningful governance of their lobbying activities, including full public transparency. Specifically, they ask companies to:

  1. Ensure their own lobbying practices and those of trade associations in which they are members align with Investor Expectations on Corporate Climate Lobbying.
  2. Review the lobbying positions taken by any organization of which a company is a member.
  3. If those lobbying positions are inconsistent with the goals of the Paris Agreement, a company should engage the organization to ensure its positions are updated.
  4. If the organization is unwilling or unable to demonstrate alignment with the Paris Agreement, the company should consider taking steps necessary to disassociate from these positions.

European investors presented a similar document on expectations on corporate climate lobbying to a large group of European companies last year, and about a dozen companies, including Royal Dutch Shell, BP, Unilever and Equinor, have already committed to these steps.

In the U.S., Congress is considering a number of bills that aim to curtail GHG emissions and climate change. However, federal agencies including the Environmental Protection Agency, the Interior Department, the Department of Energy and the Department of Agriculture have been reviewing and often rolling back climate related regulations.

“Corporations can and do have tremendous influence in the public policy process and their voices affirming a positive forward direction for laws and regulations may well help break open congressional logjams in D.C. on climate policy debates. Conversely major trade associations too often put short term company interests in front of the public good,” said Timothy Smith, director of environment, social & governance shareowner engagement at Boston Trust Walden.

During recent regulatory proceedings over federal auto fuel efficiency standards, methane emissions from oil and gas production and other issues, some companies’ public statements were at odds with lobbying being done by their trade associations.

“As investors, we can’t allow the companies we invest in to green-wash the public while wagering on climate destruction and regulatory roll-backs in secret. Companies must be held accountable for their words and actions,” said New York City Comptroller Scott M. Stringer. “Lobbying must be transparent, disclosed annually to shareholders, and consistent with the Paris Agreement. Our pensioners and our planet depend on it.”

David Zellner, chief investment officer of Wespath Benefits and Investments added, “Companies have an important and constructive role to play in enabling policy-makers to close the gap and contribute positively to the long-term value of our investment portfolios.”

Companies receiving the letter span the airline, electric power, auto manufacturing, oil refining, military equipment, chemical, beverage and retail industries. Ceres, a sustainability non-profit organization, coordinated outreach for the investor-led initiative in the U.S.

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