Scope 4 Disclosures: Need More Intel on Company Climate Change Lobbying
By Tom Polton, Skytop Contributor / October 6th, 2021
In 2019 Tom formed NV Sustainability LLC, a consulting organization to advise companies, financial institutions, business coalitions, and non-profit organizations to better manage environmental risks, seize opportunities, create leading sustainability programs to address emerging environmental issues and societal expectations.
Previously, Tom has more than 30 years of experience leading environmental, health and safety (EHS) programs for Pfizer. In 2010 he was appointed to lead Pfizer’s Environmental Sustainability program. Together with his responsibilities for Product Stewardship, Tom led efforts to reduce Pfizer’s environmental impacts throughout the product life cycle – from research, to procurement, to manufacturing, to product disposal. In a prior role, Tom directed Pfizer’s global health and safety programs associated with process safety, fleet safety, fire life safety, occupational medicine and occupational hygiene. Tom joined Pfizer after finishing his master’s degree from the Department of Environmental Health Sciences at the Harvard School of Public Health.
Tom has a Bachelor’s degree in Biochemistry from Brandeis University. He has served on the Harvard School of Public Health Leadership Council since 2006. Tom also served as President of the Board of Directors of the Pharmaceutical Product Stewardship Working Group, a 200-member coalition to address the responsible collection and disposal of unwanted medicine.
Threat of Increased Secret Corporate Climate Lobbying
The success of activist shareholders to secure three seats on Exxon-Mobil’s Board of Directors grabbed the news headlines, yet another successful shareholder proxy with enormous implications for many companies has largely been overlooked (see Item 10). Exxon-Mobil shareholders approved a request that the Board of Directors report on the Company’s climate lobbying activities within the next year. The campaign was not led by environmental extremists, but by BNP Paribas, the fifth largest bank in the world, with public support from three of the world’s largest asset managers, BlackRock, State Street, and Vanguard.
BNP Paribas’ believes that secretive corporate lobbying efforts that are inconsistent with a company’s public support of the Paris Agreement present regulatory, reputational, and legal risks to investors. BNP Paribas’ Supporting Statement for the proxy stated “These efforts also present systemic risks to our economies, as delays in implementation of the Paris Agreement increase the physical risks of climate change, pose a systemic risk to economic stability and introduce uncertainty and volatility into our portfolios. We believe that Paris-aligned climate lobbying helps to mitigate these risks, and contributes positively to the long-term value of our investment portfolios.”
Exxon-Mobil wasn’t the only company targeted this proxy season over this issue. Shareholders approved similar proposals for Delta Airlines, Norfolk Southern Corp., Phillips 66, and United Airlines Holdings Inc. Sempra Energy was the only company to beat back shareholder demand for increased transparency on climate lobbying efforts this past proxy season.
Company Acceptance of Shareholder Demands for Climate Lobbying
The Interfaith Center on Corporate Responsibility, a coalition of religious, socially responsible, pension and union investors managing more than $2 trillion, withdrew their shareholder proposals after they reached agreement with five companies to voluntarily disclose climate lobbying activities. The insurer American International Group Inc., railroad company CSX Inc. and power companies Duke Energy Corp., FirstEnergy Corp. and Entergy Corp. all pledged to report publicly about their influence on climate policy and alignment with the Paris Agreement.
Companies must accept that shareholder demands for climate lobbying activities are gaining momentum, because of the enormous influence businesses have over the legislative process to address climate change. Despite the importance of these concerns, citizens, even investors, have virtually no visibility into a company’s climate advocacy activities, especially when these efforts are led by their member trade associations.
More than 9,500 companies voluntarily submitted responses to the CDP Climate Change disclosure questionnaire in 2020 providing details on their greenhouse gas emissions, reduction targets, governance, risks and opportunities. Interested investors and climate activists can easily track companies’ Scope 1 and 2 emissions, those greenhouse gas emissions associated “with a company’s operations” through public disclosures. Insights into Scope 3, the indirect emissions “within the value chain” from suppliers upstream or customer activities downstream, are becoming more widely available. Yet, the comprehensive CDP survey contains only one question on a company’s advocacy efforts – “Is your position on climate change consistent with the trade associations to which are on the board or are a member?” (Question C12.3).
Scope 4 Demands for Increased Corporate Climate Lobbying Transparency
Now is the time to demand detailed advocacy information to ensure these activities align with companies’ public efforts to address climate change. One-on-one agreements or shareholder proxies will not suppress the growing demand for increased transparency into corporate climate lobbying. The best way to ensure corporate accountability is to integrate requests for these details into the existing disclosure programs.
We can put these disclosures on equal footing with Scope 1, 2 and 3 reporting by establishing a “Scope 4” category covering corporate activities “beyond operational boundaries” and “outside the company’s value chain.” Using this familiar nomenclature of “scope” for the new category will not only improve its acceptance by corporations, it will also have the added benefit of clarifying the intent of Scope 1 to 3 reporting. The simple graphic defines the criteria for “Scope 4” capturing the information missing from existing climate disclosures. “Scope 4” need not be limited just to advocacy efforts. The criteria for the “Scope 4” quadrant of the matrix also includes other company climate activities that are “beyond boundaries” and “outside the value chain” such as carbon offset purchases.
Acknowledgements: Many thanks to Maureen Kline, Judith Albert, and Libby Bernick who have partnered with me to develop “Scope 4” reporting.
Eleven leading environmental and sustainable business organizations have already designed a framework that could be adopted for “Scope 4” reporting. The Environmental Defense Fund’s (EDF) “The AAA Leadership Framework” lists three essential actions to execute a science-based climate policy agenda:
Advocate for policies at the national, subnational and sectoral levels that are consistent with a 1.5 degree path to achieving net-zero emissions by 2050 at the latest.
Align their trade associations’ climate policy advocacy to be consistent with the goal of net-zero emissions by 2050.
Allocate advocacy spending to advance climate policies in line with climate science, not obstruct said policies.
A formal disclosure protocol, similar to the approach taken by WRI for Scope 1, 2, and 3, is needed to help understand the specific information to be reported. Admittedly, it might be challenging to quantify the impact of corporate lobbying activities, but WRI’s GHG Protocol for governmental Policy and Action Standard (LINK) serves as a model that could be leveraged for this effort. After the protocol is adopted, the request for Scope 4 disclosures should be incorporated into the CDP annual climate survey as a central means for collecting and distributing this information to the public.
And of course, the CDP scoring system must be amended to include ratings for “Scope 4” efforts. Currently, InfluenceMap scores and ranks companies on their activities influencing climate change policy based upon the limited publicly available data sources related to corporate activity and behavior. Tracking 300 companies and 150 industry associations globally, InfluenceMap provides data and analysis to the Climate Action 100+ (CA100+), an investor-led initiative to ensure the world’s largest greenhouse gas emitters take the necessary action on climate action. In their 2021 analysis of the CA100+ companies, InfluenceMap concluded that of the CA100+: LINK
Only 10% of these companies have clearly aligned their direct climate lobbying practices with the Paris Agreement.
45% (58 companies) exhibit lobbying practices misaligned with the goals of the Paris Agreement.
Of this misaligned total, 20 are from the energy (oil/gas) sector with the remainder operating in other heavy-emitting sectors including automotive, chemicals, cement, mining, steel, and utilities.
Climate Change Depends on Corporate Impact
More and more businesses are acknowledging their impact on climate change and committing to bold greenhouse gas reduction targets in the future. These commitments are not sufficient if the companies work behind closed doors to obstruct efforts to address climate change. In a 2019 open letter to CEOs of corporate America, the leaders of EDF and other signatory organizations made clear that companies must also exert their extensive power to shape and advance effective climate policies. Without strong action by local, state, and federal governments as well as the adherence to international agreements, we will not be successful in controlling climate change.
Let’s work together to adopt “Scope 4” reporting requirements now. Formalizing the public disclosure of Scope 4 activities will provide the transparency and accountability needed to ensure businesses’ advocacy efforts are in sync with their public commitment for climate action. Leveraging the widely accepted terminology and reporting systems will likely encourage more companies to provide the information and ultimately, to have public policies that are effective in addressing climate change.