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October 6, 2023

ESG rating providers overlook corporate political activity, tracker shows

Drax Biomass power station
The Good Lobby hopes investors and regulators will use its tracker when selecting the best methods to assess the corporate political responsibility of companies (Photo: Christopher Furlong/Getty Images)

The Good Lobby has published its ‘political footprint’ tracker that it hopes will highlight how ESG evaluators are failing to assess the political conduct of companies

A tracker has been launched by Brussels-based non-profit The Good Lobby to “rate the raters” by examining the quality of the political activity data that environmental, social and governance rating providers collect on companies. 

The “political footprint” of corporations is often overlooked by rating providers, which tend to focus on typical ESG factors such as a company’s carbon footprint, says The Good Lobby. Its tracker seeks to provide more transparency on how ESG rating providers consider the political impact of companies — from political spending to corporate lobbying, corporate influence on regulations, and influence via third parties.

Alberto Alemanno, founder of The Good Lobby, tells Sustainable Views he is “quite surprised by the absence of sophistication and granularity in the demands that ESG data providers and sustainability frameworks have [regarding the political activity of] companies”.

The non-profit hopes investors, business practitioners, policymakers and regulators will use the tracker when selecting the best methods and standards to assess the corporate political responsibility of companies. 

Providers that feature in the tool include Bloomberg ESG and Climate Indices, Moody’s, MSCI ESG Ratings and Sustainalytics. The Good Lobby approached the providers and requested access to their methodologies to conduct the research.

The standards and initiatives that scored highest on the tracker, indicating a higher analysis of lobbying and other political activity, were the UN’s Principles for Responsible Investment, the Responsible Lobbying framework and the OECD. The rating providers with the lowest scores were RepRisk and Bloomberg, both scoring 10 out of a possible 200 points, and EcoVadis, which scored 12 points.

“One of the most striking features [of the tracker] is the very limited attention to one key issue, which is that most lobbying is not done by the companies themselves, but by trade associations,” says Alemanno, adding he is concerned that companies are obscuring their political lobbying by conducting it via trade associations.

“Companies’ attempts at influencing political process are often misaligned with the public commitments they make on social and environmental issues,” he adds.

Raters should be asking more detailed questions about trade association membership, including whether a company has a specific policy in place should they disagree with their trade association, Alemanno continues. “Today, the reality of lobbying and political influence is much more sophisticated than what regulatory frameworks and even ESG data providers try to capture.”

The report is available to read here.

A service from the Financial Times