Public Policy Disclosure: A Gap in Ratings & Rankings

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Sustainability ratings and rankings enable stakeholders to assess the performance of companies and identify leaders, also helping companies to evaluate their own performance against competitors. Scoring systems like the Dow Jones Sustainability Indices and CDP Climate Change Score provide insight into which companies are making the most progress on environmental and social issues.  

A recent study by The Environmental Defense Fund of eight widely used sustainability rankings found that the majority don’t factor in corporate public policy advocacy. Only one ranking recognizes companies for supporting strong climate policies, and only two penalize or disqualify companies that lobby against progressive climate policies. The report, The Blind Spot in Corporate Sustainability Rankings, also found that voluntary actions by individual companies to reduce GHG their emissions are important, but they do not deliver the same scale of impact (i.e. raise the bar for an entire industry) in the way that public policy can.

Excluding advocacy from ratings and rankings leaves a gap in assessing leadership, as companies are neither lauded for their support nor penalized for their opposition to climate policies.

Given that roughly half of Fortune 500 companies have set a climate or energy target, corporate advocacy is a key measuring stick to assess whether or not companies are walking the talk on their environmental commitments. Excluding advocacy from ratings and rankings leaves a gap in assessing leadership, as companies are neither lauded for their support nor penalized for their opposition to climate policies. This implies that companies can be considered leaders in sustainability by only improving their internal operations. The EDF report calls out this critical misstep saying, “The most powerful tool companies have to fight climate change is their political influence. Only when sustainability rankings reflect how companies are using that influence can they truly show what leadership in sustainability looks like.”

Factoring corporate advocacy into sustainability ratings and rankings is particularly important considering that between 2000–2016, over $2 billion was spent on lobbying around climate issues. If sustainability ratings and rankings require companies to report on their public policy engagement, it would signal a major shift in corporate sustainability disclosure and substantially increase transparency.

So why isn’t corporate advocacy included in sustainability ratings and rankings?

The largest shadow over corporate lobbying is transparency in companies’ political activities. For example, Dr. Tom Lyon, a professor of Sustainable Science, Business Economics and Public Policy at the University of Michigan, has suggested that in the US, updating the Lobbying Disclosure Act would increase transparency in public engagement and require companies to provide detailed reporting of lobbying and grassroots group activities. Although this could improve transparency in lobbying broadly, it doesn’t specifically apply to advocacy for or against sustainability- or climate-related policies.

Another barrier is the lack of transparency in the methodology and criteria used by sustainability ratings and rankings. Many scoring systems broadly discuss their methodology, but none divulge the “indicators” used for scoring. As noted in an interview quote from SustainAbility’s 2019 Rate the Raters report, “Many miss the really important issues — positive engagement on policy to affect changes in line with sustainability. Actions to share power with stakeholders and actors in the value chain. Willingness to step out front on key issues such as climate change.” Lack of transparency from the organizations scoring companies makes it difficult for stakeholders to evaluate sustainability leadership across the ratings and rankings landscape.

Ultimately, the goal of sustainability ratings and rankings should be to recognize companies who advocate for sustainable policies, with a specific focus on climate policy, in the hope that it will encourage other companies to follow suit and build business support for policies that address climate change in a substantial way.

The route of greatest impact would be to uniformly account for corporate advocacy in the scoring methodology of sustainability ratings and rankings. Currently, scoring methodologies are not aligned, and many sustainability professionals are seeking consistency across these platforms. For example, the 2019 Rate the Raters research found that more than 60% of respondents want to see greater consistency and comparability across ratings methodology. Following one methodology would hold companies accountable for their lobbying activities and give stakeholders a full view of a company’s sustainability ambitions. One way to do this would be by applying the UN Global Compact’s Guide for Responsible Corporate Engagement in Climate Policy. This guide was created to help ranking entities develop disclosure guidelines and identifies three steps that companies can take to show they’re responsibly engaging with climate policy:

  1. Identify: Inventory influences, risks and opportunities with internal and external experts.
  2. Align: Complete internal audit to ensure consistent positions, strategies and investments.
  3. Reports: Disclose positions, actions and outcomes.

Using this framework would create a more consistent scoring and evaluation methodology across sustainability rankings and enable corporate advocacy to hold greater weight in these scores.

Ultimately, the goal of sustainability ratings and rankings should be to recognize companies who advocate for sustainable policies, with a specific focus on climate, in the hope that it will encourage other companies to follow suit and build business support for policies that support the transition to a low-carbon economy.

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