Conducting corporate climate policy engagement (also known as advocacy or lobbying) positively and appropriately is critical to creating the conditions that will enable a company to achieve its net zero transition. This briefing, produced by the Climate Governance Initiative in collaboration with the global think tank InfluenceMap, highlights the key issues that board directors should be aware of.
The Climate Governance Initiative enables board directors to serve as effective advocates for the adoption of a comprehensive corporate climate transition strategy consistent with the goal of reaching net-zero carbon emissions by 2050 or before. This strategy should align with the goals of the Paris Agreement, in particular, keeping average temperature increases within 1.5°C above pre-industrial levels, as reiterated in recent reports by the Intergovernmental Panel on Climate Change (IPCC). To support this, board directors can promote responsible lobbying efforts on climate and ensure that the policy engagement of their companies aligns with, and supports, the delivery of their respective corporate climate transition strategies.
This briefing should be read alongside the range of additional resources produced by the Climate Governance Initiative, which have been produced to support board directors in their climate transition efforts, including the World Economic Forum’s Principles for Effective Climate Governance and guidance on core topics such as risk management, strategic planning, remuneration, reporting, human capital and stakeholder engagement.
Climate Policy Engagement – Background
What is climate policy engagement? In 2014, a group of UN agencies published the UN Guide for Responsible Corporate Engagement in Climate Policy. This defines policy engagement as consisting of a broad range of corporate activities beyond what is conventionally considered lobbying. These range from advertising, social media, public relations and sponsoring research, to direct contact with regulators and elected officials, funding of campaigns and political parties and participation in policy advisory committees. All are part of a strategic corporate effort to influence government policy around climate change (or any policy area) and the public discourse in which it is formed.
The way corporations influence government policy is variously described as “advocacy”, “policy engagement” (used in this briefing) or “lobbying”. These processes are typically carried out by sections of the company termed “Government Relations”, “External Relations”, “Public Affairs/Relations”, “Legal”, and “Communications”.
What is at stake? The UN’s climate science body, the Intergovernmental Panel on Climate Change (IPCC), has been unequivocal about the need for strong and binding policy on climate from governments. The IPCC’s special report Global Warming of 1.5°C (2018), noted that moving towards 1.5°C pathways implies “stringent and integrated policy interventions.” The IPCC’s Mitigation of Climate Change report (2022) identified “opposition from status quo interests” and “incumbent” fossil fuel interests “exerting political influence” over the policymaking process as a key barrier to progress towards delivering the Paris Agreement’s goals. This finding has also been identified by international organisations, such as the OECD in its 2021 report Lobbying in the 21st Century, and by political leaders, including Barack Obama, former Executive Secretary of the UNFCCC Christiana Figueres, and the current UN Secretary-General Antonio Guterres. While overt climate denial from the fossil fuel sector is largely in the past, modern-day tactics to delay regulatory change and confuse the public narrative continue unabated.
Key considerations for board directors
- A supportive policy environment will make it easier for companies to realise their climate transition strategies. Climate change is inherently systemic in nature, and therefore does not lend itself well to being assessed and managed by boards in the same way as many other business risks. Unless the policy environment evolves positively to enable and reward significant changes in technology and business practices, and conversely to penalise business-as-usual practice and minimise the disruptive effects of poorly-managed change, boards and companies’ individual efforts will not succeed in delivering the enhanced resilience and commercial success that even the soundest climate transition strategy seeks to achieve.
- Board directors should ensure that their companies, whether large or small, adopt a proactive, transparent and constructive voice in public policy-making and broader societal engagement, when acting both individually and through business associations and other collective initiatives. This will serve to ensure convergence between the organisation’s net-zero goals and the enabling environment needed to deliver these outcomes.
- Board directors should ensure that their companies’ policy positions, as well as those of their membership organisations and external corporate coalitions, are conducive to achieving a supportive environment for high priority climate policy interventions1. In its special report Global Warming of 1.5°C, the IPCC outlines the policies needed to support mitigation pathways that can hold temperature rise to 1.5°2, and projects such as Climate Action Tracker highlight the enabling conditions across key sectors that are in line with this3. This provides useful context for boards when considering which policies and initiatives are most relevant for the delivery of their companies’ climate transition goals.
- A growing number of climate-ambition initiatives highlight the critical role of responsible corporate lobbying in reaching positive climate outcomes. For example, the updated Race to Zero criteria require members to “align their lobbying and advocacy activities with net zero by proactively supporting climate policies at the subnational and national level”. Likewise, the UN Secretary-General´s expert group on net-zero commitments of non-state entities recommends: “non-state actors must align their external policy and engagement efforts, including membership in trade associations, to the goal of reducing global emissions by at least 50% by 2030 and reaching net zero by 2050”.
- Reflecting the increasing scrutiny of climate engagement as part of a company’s overall net-zero strategy, a new Global Standard on Responsible Climate Lobbying– created by institutional investors in consultation with investors, companies and civil society groups – has been launched to drive a step-change in investors’ and organisations’ commitment to responsible climate lobbying. The 14-point Standard calls on companies “to make formal commitments to responsible climate lobbying, to disclose the funding and other support they provide to all trade associations involved in climate change-related lobbying and to take action if lobbying activity undertaken by them, or their trade associations, runs counter to the goals of the Paris Agreement.” Investors supporting the Standard commit to “championing responsible lobbying activity, while engaging – potentially including the filing of shareholder resolutions – with those companies whose lobbying practices do not align with the Standard.”
- Despite rising corporate climate ambition, it is not unusual for companies to make ambitious climate commitments that are then inconsistent with, or actively undermined by, the lobbying policies of the trade associations of which they are members. Sometimes this inconsistency resides even within their own public affairs or government relations departments, especially if they operate globally in highly diverse policy environments. In fact, research by InfluenceMap, analyzing around 200 of the world’s most influential industry associations shows that their activity is often at odds with that of many of their more climate-ambitious corporate members. Boards should have clear oversight systems to avoid such misalignment, as it can pose significant risks to companies, including:
- Reputational risk: scrutiny by the media, civil society and investors is increasingly focusing on the potential incidence of “greenwashing”, and in this case the risk that corporate communications to various audiences may conflict with positions taken with policymakers. In some markets, escalation tactics exercised by investor initiatives and activist shareholders (for example, resolutions filed at AGMs in the US to pressure companies to be more transparent or change their practices), are increasing year-on-year and attract wide-ranging attention.
- Legal and climate litigation risks: In 2022, a group of investors filed a legal case against Volkswagen after the company refused to reveal crucial information on its climate policy engagement activities. This case shows the legal risks companies may face when championing a ‘green’ transition publicly whilst undertaking lobbying activities that run counter to their climate ambition.
- Because of these inherent risks, it is appropriate that the policy engagement agenda be set at board level, with direction from the CEO or Chair. Despite this, InfluenceMap’s research has found that disclosure regarding the policy engagement process or the oversight exercised by their boards, is largely lacking.
What questions do board directors need to ask related to corporate climate policy engagement?
Board directors need to understand their company’s positioning on climate policy, and their oversight role should extend to ensuring that this positioning supports the delivery of the organisation’s climate goals and transition strategy. The following questions provide a useful guide for board directors:
- What climate policy engagement has taken place and/or is planned by the company?
- Are these policy positions consistent with a climate transition strategy that is aligned with net-zero by 2050, as per the analysis and guidance of the IPCC?
- Where are decisions around climate policy engagement taken, and has the company assigned responsibility at board level for oversight of climate policy engagement policies and practices?
- Has the board mapped all the different channels of influence through which the company seeks to engage on climate policy, including via policymakers and other key actors in business, academia and civil society, via social media, PR, advertising and sponsorship of research; and does management report periodically on its engagement with such actors?
- Does the company regularly monitor the policy positions of its membership organisations to ensure alignment? What actions does it take if and when it spots inconsistencies, and how is the board kept informed? Is there an ongoing process of review?
- Does the company report to the board on how its public policy activities across all jurisdictions have been executed? What role does the board play in ensuring consistency at group level?
- What disclosures does the company make regarding its individual climate policy engagement, its alignment with industry associations, and any remedial actions taken to address potential inconsistencies between the two?
Best practice
Best practice in respect of public policy engagement on climate change can be summarised as follows4:
- Positive engagement: As part of the company’s application of the Principles for Effective Climate Governance published by the Climate Governance Initiative and the World Economic Forum, boards should ensure that policy engagement activities, rather than being a barrier, are positively aligned with the Paris Agreement’s net-zero by 2050 goal, consistent with the IPCC’s 1.5°C maximum temperature increase and interim targets.
- Aligned engagement: All aspects of climate policy engagement should be strategically aligned behind this position. The full spectrum of what constitutes climate policy engagement is contained within the UN Guide for Responsible Corporate Engagement (2014), and covers advertising, social media, public relations and sponsoring research, as well as direct contact with regulators and elected officials, funding of campaigns and political parties and participation in policy advisory committees. Board oversight should ensure that all climate policy advocacy undertaken across the company’s different subsidiaries and regional businesses aligns with the board’s approved climate transition strategy, including on policy engagement. Significant misalignments between companies and their membership associations continue to arise in respect of climate policy engagement. Boards need to be kept regularly informed of the extent to which alignment is being maintained, and of the monitoring and remedial measures being taken, such as auditing of industry group networks, timelines and plans for resolving potential misalignments, and disclosure to stakeholders.
Best practice in this area relates directly to the following principles set out in the Principles for Effective Climate Governance:
- Climate Accountability: Taking responsibility for the company’s long-term resilience to climate risks
- Strategic Integration: Ensuring that management factors material climate-related risks into the company’s strategy
- Reporting and Disclosure: Transparency around material climate related risks including to investors and the public
- Exchange: Staying informed on current best practice in climate governance by maintaining dialogue with policy makers and policy influencers
