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Democrats’ ESG Drive Fuels Lobbying Bonanza in Washington

May 3, 2021, 10:01 AM

Environmental, social, and governance lobbying has more than doubled in the past year, as newly-in-charge Democrats push for companies to be more transparent and accountable on issues such as climate change, diversity efforts, and political activities.

More than 40 companies, trade associations and advocacy groups have lobbied federal officials on ESG matters so far in 2021, compared to only about 20 in the first quarter of 2020, according to a Bloomberg Law review of public reports. BlackRock Inc., PepsiCo Inc., and ConocoPhillips Co. were among the companies that disclosed ESG lobbying efforts for the first time as President Joe Biden took office.

Companies’ ESG lobbying is varied, ranging from the SEC’s interest in potential climate-change and political-activity disclosures for public companies to a Labor Department rule that would guide how pension and 401(k) managers handle ESG investments. Legislation that would mandate greater diversity on corporate boards has also attracted attention, filings show.

The lobbying push comes as companies are increasingly speaking out about social injustice and climate change, but have few rules dictating what they have to tell investors about their own performance. Trillions of dollars are at stake for companies as the Biden administration and Congress decide what information investors should have to evaluate ESG risks and investment opportunities.

“With it being a priority of the Biden administration, needless to say, it becomes a priority of business,” said Capitol Counsel partner De’Ana Dow, a lobbyist for the Energy Infrastructure Council, a trade group that represents more than 50 traditional and renewable energy infrastructure companies.

Rising Tide

Bloomberg Law examined quarterly lobbying reports submitted to Congress for mentions of ESG or environmental, social, and governance. The most recent filings covered the first three months of 2021, up until March 31.

ESG advocacy has been on the rise since lobbyists first started including references to it in their reports in 2015. But it really began to take off in 2019 and 2020 when the Democratic-controlled House started taking up legislation to require corporate disclosures on boardroom diversity, climate change, and other ESG topics. The ESG Disclosure Simplification Act and Improving Corporate Governance Through Diversity Act are among the bills that Democrats have reintroduced in this Congress.

The United Nations-backed Principles for Responsible Investment is among the organizations that entered ESG lobbying in 2020. Its advocacy has included ESG disclosure work on behalf of its more than 3,000 member firms, most of which are investment managers.

Investors need standardized ESG data they can use to make fully informed decisions about their money, PRI senior policy analyst Colleen Orr said.

“The market has moved drastically over the last few years on ESG investments, but the U.S. regulatory landscape has not kept pace with the growing understanding of the risks and opportunities presented by ESG considerations,” she said.

BlackRock and ESG

BlackRock’s first mention of ESG in a lobbying report came this year as CEO Larry Fink called on companies to confront climate change, racial injustice, and economic inequality.

The world’s largest asset manager referenced ESG in its lobbying filing in connection with the Labor Department’s investment duties rule.

The rule, finalized in the final months of the Trump administration, directs fiduciaries managing pension and 401(k) plans to put the interests of plan participants and beneficiaries in front of what it called “non-pecuniary” goals. The agency initially said it wanted to provide clarity on “recent trends” in ESG investing, but later removed explicit references to ESG from the final rule.

The Labor Department under Biden said it wouldn’t enforce the Trump-era rule and now is looking to allow socially conscious investing and define ESG factors as material to pension and 401(k) investors.

Incorporating ESG factors into investment decisions likely will lead to better risk-adjusted returns for investors over the long-term, BlackRock executives said in a letter to the DOL last year.

“We believe that sustainability-related factors can contribute to both value creation and value destruction,” they wrote.

A BlackRock representative declined to comment for this story.

PepsiCo, ConocoPhillips

PepsiCo and ConocoPhillips mentioned ESG in their lobbying reports when discussing their interest in disclosures.

ConocoPhillips is focusing on SEC work concerning climate-related financial disclosures, according to its filing.

The commission currently is seeking feedback from the public on potential disclosures on climate risk and greenhouse gas emissions. Congressional Democrats also have bills that would mandate climate reporting, including the Climate Risk Disclosure Act from Sen. Elizabeth Warren of Massachusetts and Rep. Sean Casten of Illinois.

PepsiCo is following potential proposals on the disclosure of companies’ political activities and ESG costs, its lobbying report shows.

The SEC can’t mandate disclosures on how companies use their money for political activities without congressional authorization. But Democrats in Congress are looking to give the agency the power to act.

ConocoPhillips and PepsiCo both have said ESG is important to their businesses.

PepsiCo was one of many companies that suspended political contributions following the Capitol riot earlier this year. And ConocoPhillips was recognized as the top U.S. performer in the “Oil & Gas Upstream & Integrated” sector in the S&P Global’s Sustainability Yearbook 2021, which includes companies with top ESG scores from the credit rating agency.

A PepsiCo spokeswoman declined to comment. A ConocoPhillips representative didn’t respond to requests for comment.

More lobbyists will follow in the footsteps of those at BlackRock, PepsiCo, and ConocoPhillips as ESG continues to garner attention in the U.S., Dow said.

“It’s gotten a foothold, and it’s growing substantially year over year in terms of the interest level and the market impacts,” she said. “I don’t think it goes away.”

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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