Investors and Responsible Political Engagement
The Principles for Responsible Investment (PRI), a UN-supported network of investors, have recently published a report setting out their views on the investor case for responsible corporate political engagement.
The report explores the concept of responsible engagement and highlights that corporate political engagement can be responsible when activities adhere to existing regulations, promote integrity, promote the long-term interests of a company, and ultimately lead to well-informed, inclusive, and effective public policy decisions.
To help guide companies, governments and civil society, the report outlines several principles and frameworks on responsible political engagement:
The OECD’s principles for Transparency and Integrity in Lobbying for governments.
Transparency International’s Wise Counsel or Dark Arts, Principles and Guidance for Responsible Corporate Political Engagement report guiding companies on how to manage activities such as political donations and stakeholder engagement.
The ICGN’s Political Lobbying and Donations report presents principles and guidance for investors’ engagement on the topic.
The United Nations Global Compact’s Towards Responsible Lobbying report provides a six-step diagram to help companies identify if their lobbying practices are being conducted responsibly.
The Responsible Lobbying’s own framework which identifies globally applicable principles and standards of responsible lobbying.
The report outlines the investor case for responsible corporate political engagement and explains why investors should ensure that their portfolio companies are conducting political engagement in a responsible manner. PRI outlines the following risks for both companies and investors:
Unchecked political involvement can raise governance risks at a company level and increase risks of policy capture, where decisions are favoured toward business interests rather than to the public.
Patchy regulatory frameworks can exacerbate regulatory and reputational risks for companies. This can be caused by a lack of transparency for companies engaging in legal but unethical practices and uncertainty around any changes in law.
Political engagement without proper safeguards could negatively impact global sustainability objectives in favour of short-term business objectives.
On a practical level, the report outlines the key steps for investors to consider when seeking to understand the objectives, processes, and outcomes of investees’ political engagement:
Develop a position: Investors should build an internal position on political engagement.
Research and assess: Investors should use existing tools and resources to access portfolio companies’ political engagement activities against key ESG objectives and build benchmarks where these tools are unavailable.
Engage: Investors should support efforts to improve public disclosure to address data gaps, including engagement with policy makers to strengthen mandatory disclosure and undertake stewardship activities to clarify expectations, advocate for strong commitments and monitor progress.
In the coming year, the PRI will develop further stewardship guidance for investors on responsible political engagement and aim to provide specific guidance on corporate political engagement as it relates to climate change and human rights.
We expect the PRI’s new focus on the issue of responsible lobbying will “mainstream” focus on this issue amongst the investor community, leading to more expectations being placed on the companies they are invested in.
Read the full report here.