How can investors help prevent corporate policy capture?
Preventable Surprises, a ‘think-do’ tank focused on systemic ESG risks in the financial system published a report, identifying corporate policy capture as a pervasive, global challenge, and calling on institutional investors to steward against the undue influence to support the integrity of public policymaking in line with their ESG objectives.
The report sits under the Corporate Lobbying Alignment Project that aims to make corporate political capture a central component of investors’ approach to ESG stewardship and inform areas for collective action. Central to the project is the argument that companies’ political ‘rent seeking’ practices can undermine necessary policy actions addressing systemic risks, such as climate change, public health administration, biodiversity collapse, or economic inequalities, and therefore often conflicts with investors’ long-term ESG objectives. While investors have become more visible in engaging with specific ESG topics such as Climate change, there is an opportunity to update their engagement strategies to more consistently include systemic issues.
On a practical level, the report suggested 12 steps across 3 complementary areas that institutional investment stakeholders can draw on to address negative corporate lobbying and influence:
The first area Better data advocates investors demanding strengthened disclosures and accountability of conflict of interests (especially with revolving doors), political spending, and more comparable standards in reporting lobbying activities.
The second area Changing behaviours guides from communicating shared expectations addressing the full scope of corporate conduct that may interfere with policies against systemic risks, to engaging with credit rating agencies to incorporate lobbying in their ESG scoring methodologies.
The third area Make compelling arguments focuses on the global asset management community leveraging their existing knowledge of political influence channels to counter negative influence narratives, as well as supporting precautionary financial regulations, whenever an action or policy has a suspected risk of causing harm to the public.
Action points for stakeholders in various roles across the institutional investment chain are also discussed extensively in the report.
Read the full report here.