GUIDING PRINCIPLES FOR RESPONSIBLE CORPORATE ENGAGEMENT IN CLIMATE POLICY

Companies can use the following five core elements as guiding principles for responsible engagement in climate policy.

1. Legitimacy

Legitimacy refers to a company’s approach, intentions and understanding of climate policy. Defining factors for legitimacy include:

• Building trust. Several studies point to the importance of a company establishing a trusted voice, clear objectives and responsible influences in public policy debates. Are the means of influence proper uses of corporate power? Are the company’s methods of political engagement broadly accepted? Responsible companies can demonstrate and justify their legitimate role by explaining their intentions and positions, and by partnering with others.
• Doing no harm. Several executives and thought leaders suggest responsible companies will avoid any direct or indirect support for policies or positions that further increase the risks and impacts of climate change.
• Having a genuine interest in seeing policy outcomes. Responsible companies are those demonstrating sincere intentions to create strong frameworks, while other companies may be engaging simply to delay or derail policy action. Responsible engagement does not reject a proposal without offering a viable alternative. Nor does it seek simply to delay or distract. A responsible company will support and endorse specific policy proposals, not just the concept of policy action.
• Defining a material interest. Companies can articulate their reasons for engaging, backed by objective analysis, when weighing in on specific policy questions. It is important to understand the connections between climate policy and their core business competencies.

 2. Opportunity

Opportunity refers to how a company understands the benefits of climate policy and the available influence channels to shape and support those policies. Defining factors for opportunity include:

• Recognizing risk mitigation, competitive advantages and future industry transitions. Climate change has impacts creating risks and opportunities throughout a value chain. Policies to respond to those risks and opportunities will shape an industry’s future. Companies that see the transition ahead can find ways to proactively engage in policy debates to help minimize future market risks and maximize opportunities.
• Articulating a case for policy positions with broadly shared benefits. There may not always be alignment of interests, but where possible, it is helpful to articulate the benefits both to the company and to others. Even in cases of conflicting interests, there is an opportunity to show how a different approach could align a company’s or industry’s priorities with the public good in an increasingly interconnected world. The greatest opportunity to engage in policy is to understand the interests of others. Policymakers may well want to know what the policy means to the company and industry but they also want to understand the impact on health or the local economy. Similarly, it is important to articulate the impacts to investors, customers and suppliers.
• Playing positive and proactive roles. Responsible engagement can include supporting research, providing analysis, convincing others in the business community of the case for change, and explaining what works and what does not work. Constructive voices are welcome participants in policy debates. Companies can shift debates in a positive direction by publicizing the feasibility and cost-effectiveness of policy change with their own actions and experiences.
• Seeking influence opportunities that fit the company scale. Opportunity for influence will differ by the type of company. Some companies may be large and established, while others may be newer, smaller and growing fast. For large companies, their individual views may carry weight, or a more powerful opportunity may exist in shaping the voice and perspective of their broader industry—represented often by a trade association. Smaller companies, meanwhile, may not have the time or resources to engage on policy. Their opportunities may be in creating coalitions of other voices with shared objectives and common input.

 3. Consistency

Consistency involves aligning public and private interactions with policymakers, with coherent strategies that ensure a company’s direct and indirect influences accurately reflect climate science. Defining factors for consistency include:

• Staying true to climate science and objective analysis. Responsible engagement means that a company’s policy positions match up with: 1) the pace and scale of GHG reductions required to minimize climate system disruption (e.g., the internationally- agreed target of limiting average warming to 2°C); and 2) the scale of investments needed to adapt to the disruptions from damage already done or predicted to take place. A company—and trade associations or other groups that represent the company—use the most up-to-date analysis from qualified sources instead of selectively using data or discredited analysis to mislead policymakers.
• Aligning public and private messages. Saying different things to different audiences suggests duplicitous intent and can put trusted relationships with customers, investors, policymakers and the public at risk. The value of achieving consistency is in avoiding the public, political and financial backlash if a company is found to be backing one climate policy position in public and another in private. Companies may face scrutiny in the media for membership in, or contributions to, groups that are obstructing or misleading climate policy debates. Meanwhile, investors want to know whether the policy positions a company is advocating for align with their own. Civil society groups are increasingly vocal in pointing to inconsistencies between a company’s stated position on climate change and the influence they may have in delaying or preventing policy action.
• Creating common core messages across multiple regions and platforms. While it makes sense for a company to have policy positions tailored to the needs of specific countries, responsible companies will have overarching positions that are common among regional engagements. Similarly, responsible companies will recognize when industry associations they are affiliated with are undermining their own messages to policymakers. This is an area of inconsistency, increasing scrutiny and stakeholder pressure. These are essential, yet particularly challenging tasks. There are likely to be different political views, business interests, government interactions and influence priorities among different divisions within any one company. There may be important short-term and long-term impacts to balance. There may be several different people or business units engaging policymakers on behalf of a company.
• Aligning actions and words. To engage responsibly, corporate influences (direct or indirect) and public relations need to match up with actions and investments to advance climate policy. A company must ensure its lobbying is consistent with sustainability commitments and strategies.

 4. Accountability

Accountability typically refers to a company’s willingness and ability to act on its responsibilities to its shareholders, employees and the communities impacted (directly or indirectly) by its operations, products and services. Defining factors for accountability include:

• Pursuing the long-term interests of a company’s core business, shareholders, industry and its current and future customers. A responsible company will manage climate change like any other business risk or opportunity. This includes ensuring the company has a coherent strategy for navigating and informing a regulatory framework for the long-term future of the business. Some companies, for example in the power sector or among energy-intensive industries, will have an obligation to reduce the amount of GHG emissions they create. They are accountable for how they engage in policy debates to promote regulatory frameworks that are most cost-effective, while still achieving the necessary GHG reductions. Other companies that may not be large emitters are still accountable to protect and create value for their customers and shareholders. They can support and suggest policy options that recognize the urgent need for action on climate change and maximize benefits across their value chain. Investors also wish to know what a company is doing with their money when it comes to influencing climate policy. Lobbying on public policies requires board oversight because it involves significant shareholder interests. Investors with an eye on the long-term future of the industry and overall economy want to know how a company is aligning policy outreach with corporate sustainability commitment.
• Conducting due diligence with a broader perspective. Responsible companies can advocate for policies that create advantages for themselves, as well as broader benefits to other stakeholders. This involves understanding how climate change policies will be most effective and cost-efficient in reducing GHG emissions, at the pace and scale necessary to minimize risks throughout a company’s value chain (including long-term needs of customers, suppliers and communities). It also involves understanding the risks of inaction and the tradeoffs or consequences of various policy options (e.g., how a policy that prioritizes alternative energy production may impact freshwater availability).
• Overseeing and managing inconsistencies. It can be extremely challenging to align messages and influences. That difficulty makes it all the more important for companies to create systems to review and hold individuals accountable for external messages and influences. Oversight is needed for managing climate policy priorities across multiple geographies, while balancing different political views and business interests. Responsible engagement means identifying and resolving those areas where a company’s influence on policy may be misaligned. Accountability means having answers to questions like the following: If a company has set an aggressive GHG reduction goal, is it also lobbying for the policies that will help achieve that objective in a cost-effective manner? What is the company doing to ensure common messages, efficient management and policy and engagement? If a company has a marketing campaign to promote its “clean” or “green” products, is it actively engaged and committed to creating the regulations to support an economic transition that accelerates market demand for those products?

 5. Transparency

Transparency is an essential component of responsible engagement. Defining factors for transparency include:

• Making company views on climate policy public. Responsible companies can clarify positions for interested investors, customers and other stakeholders. The value of transparency is perhaps most logically linked to building a positive public perception of a company. At the same time, demands for transparency can also help encourage a company to improve its internal processes and performance. Demands for information on public policy engagement often come from shareholders and other stakeholders.
• Explaining why climate policy is material to the business. Responsible engagement means being open and honest about how public policy issues are seen as important and how they connect to specific business interests. This includes being open about the process to determine what is important and what is not. It also applies both where policy is being discussed and where policy is not being discussed, but needs to be. Failure to recognize climate change risks can lead to legal and financial consequences.
• Summarizing activities, influences and outcomes. Responsible companies can build trust by disclosure through channels like CDP or the UN Global Compact. Companies can then explain what they are doing, why they are doing it and what changes (e.g., pressure from customers or suppliers) might prompt the companies to be more engaged. It is important to disclose direct influences, as well as acknowledge or clarify indirect influences through trade associations, research funding, or other connections to groups shaping climate policy. Companies may also choose to disclose investment and expenditures to show how they are engaging in climate policy.
• Making intent clear and open, even if content must remain private. Responsible companies will clarify positions and motivations for investors, policymakers and other stakeholders. Transparency taken too far might be detrimental to business, and even stop leaders from engaging. Some issues may reveal proprietary or commercially sensitive strategies, so a company may wish to keep them private. However, responsible companies can still express the intent and objectives of policy engagement, which will clarify what the company wants to achieve.
• Building internal engagement. There are internal benefits to reporting externally. Public scrutiny can prompt senior management to pay attention to and support efforts to improve practices and coordination within the company.
• Recognizing and being clear about the limits to transparency. In cases where competitive advantages or new technologies are involved there is an understandable hesitation to disclose specific policy influence targets publicly. In-depth public reporting could be misinterpreted out of context, or could jeopardize trusted relationships with policymakers. There are means of hiding influence (e.g., political donations funneled through outside groups) and some actors may continue to take advantage of those opportunities. The challenges to being transparent, however, can be overcome.