Filling out an ESG survey can be a nightmare. There are hundreds of data points to chase, and they don’t even effectively measure a company’s impact. Yet Alberto Alemanno, founder of The Good Lobby, and a professor at French business school HEC Paris, argues yet more data points should be added for an ESG rating to be effective: those that measure a company’s lobbying activities.
“Lobbying is a blind spot for ESG raters,” Alemanno told me in an interview this week. “Investors are becoming more and more interested in knowing how companies organize their lobbying because it can become material. But the amount of data they gather is very modest, very far from where it should be.”
In fact, the new “Good Lobby report” shows that most ESG raters, including MSCI, Bloomberg, Ecovadis, Refinitiv, and Sustainalytics, measure at most a quarter of a company’s lobbying practices. Moody’s and S&P perform least badly among traditional ESG raters, including 40% of lobby data. Only a few dedicated lobbying raters, such as the OECD Principles for Transparency and Integrity in Lobbying, and the Responsible Lobbying Framework, score more than half, and just barely.
The most common and problematic omissions are transparency on political spending, declarations on indirect lobbying such as trade association membership, and contingency plans in case lobbying done on their behalf misrepresents their position on topics such as climate or sustainability.
Would ESG performance assessments change meaningfully if these data were included?
Yes, says Alemanno. By not including lobbying data, you risk getting a false image of the company you’re looking at. It is perfectly possible, for example, that a company scores well on environmental and social measures included in an ESG survey while boycotting progress on these very issues to a legislature.
This concern isn't just hypothetical.
Media reports and investigations on such practices are rife. In 2020, companies including Coca-Cola, Nestlé, and PepsiCo were accused of "hypocrisy" for pledging plastic recycling and reduction, while lobbying against it. Ford and GM lobbied the Trump administration in 2017 to weaken fuel standards while publicly touting their commitment to the Paris Accord. And last year, Microsoft was the only of America's five Big Tech companies to endorse the Inflation Reduction Act, while others, such as Amazon and Apple, remained quiet, despite often bragging about their green credentials.
Including lobbying data would prevent such greenwashing.
The current lack of lobbying data is first and foremost a risk to investors, Alemanno said, as it may lead them to allocate funds based on wrong assumptions. And by failing to provide the full picture of a company’s lobbying, ESG raters may miss important indicators of greenwashing, which in turn may lead to increased skepticism about the effectiveness of ESG ratings overall.
One of the most problematic cases of lobbying is the way Business Europe and the U.S. Chamber of Commerce influence “green” regulation, such as the Green New Deal in Europe, or the Inflation Reduction Act in the U.S., Alemanno told me. “They look for the lowest common denominator among their members,” he said. It sometimes catches even their most progressive members by surprise.
Yet there are also more devious, individual cases. Given the current obscurity, “a company might benefit from being perceived as being ahead of the curve, while in the backdoor [it may] try to curtail the advancement of the very same objectives," Alemanno told me. “It’s the left hand doing one thing, the right hand another. You say that you support a particular policy initiative, but then lobby against it.”
So what’s the way out? Quite obviously, it would be to increase lobbying transparency and include its indicators in ESG scores. But that's not likely to happen, Alemanno pointed out: ESG rating agencies often aren’t even transparent on their own ESG methodologies and practices, so how can they credibly demand that others share theirs?
Perhaps it’s up to the companies themselves to take up the glove. Here at the Impact Report, we believe in companies as a force for good. And we believe that most CSOs are genuine in their commitment to sustainability. If that's true, what do you have to lose from being transparent about your lobbying?
Separately, Fortune released its annual list of the 100 Most Powerful Women in business today. You can learn about the impactful women on the global list here and below.
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Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com
This edition of Impact Report was edited by Holly Ojalvo.
