Companies should take a strategic approach to policy engagement in line with societal and investor expectations

Companies at the forefront of the net zero transition know that public policy alignment with business goals is a crucial enabler to derisking their transition. When governments, regulators and standard setters put the right climate policies and regulations in place, companies can attract required transition investments and advance on their goals faster.

However, a new survey of CEOs showed that only 54% expect to be able to meet their 2030 goals with evidence that many companies are finding it hard to move at the necessary scale and speed resulting in far longer to achieve the energy transition needed.

A key constraint holding this progress back is a significant gap between current climate targets and the policy and incentive structures needed to support the transition. Multiple organisations, including the IEA and Climate Action Tracker, have shown that the current policies in place around the world are putting us on a pathway closer to 2.7°C than 1.5°C.

The need for a systems level rethinking of policy and incentives was emphasised in the WBCSD Business Breakthrough Barometer launched in October, with 67% of executives saying that implementing key policies would have a significant impact on low carbon investment levels. As a new WBCSD public-private collaboration initiative emphasises, it is clear that leading companies can – and must – play a role in far smarter engagement with public policy evolution to deliver their transition targets (given the lack of momentum in multi-lateral processes and national governments) to close the policy gap.

While it is clear that companies must lean in more to support ambitious policy-making for the climate transition, lobbying and wider corporate influence is now under ever more scrutiny. This is where what is becoming known as Responsible Policy Engagement (RPE) sits.

This focus on RPE is fast becoming an area of risk and opportunity for business. There is increasing public focus from climate leaders such as Christiana Figueres, Antonio Gutierez, NGOs and the media on how leading companies and trade associations are contributing to or blocking progress on climate policy. Major investor groups such as Climate Action 100+, representing $68trn of investment, are calling on companies to assess and report on the alignment between their sustainability commitments and their policy advocacy, and regular rankings are now being compiled. A focus on public policy engagement is also a key element of emerging transition planning guidance.

This means that there is a need for boards to consider RPE.

Transition planning and policy engagement

According to We Mean Business Coalition there are four key components of a transition plan: an emissions reduction strategy, a governance and business strategy, public policy, and just transition. Similarly, the UK Transition Planning Taskforce’s (TPT’s) Disclosure Framework, which helps organisations set out a credible and robust climate transition plan as part of reporting on forward business strategy, in element 3.3 identifies the need to identify engagement with government, the public sector, communities and civil society.

The Corporate Sustainability Reporting Directive (CSRD) also calls not only for a disclosure of a transition plan (and thus consideration of policy engagement) in ESRS E1-1 but also disclosure on ‘Political influence and lobbying activities’ in G1-5.

In practice, companies who have set ambitious targets on climate, human rights and nature will be undertaking double materiality assessments for their transition journeys and CSRD reporting – forecasting five to 10 years into the future – and identifying their most material dependencies, risks and opportunities on that transition journey. Any double materiality risk and opportunity assessment will reveal that much of the policy to enable companies achieve their transition plans is not yet in place and thus a focus on policy advocacy and its success may be a key material dependency. This is why the WBCSD transition planning programme and its Transition Planning Primer with ERM has identified policy engagement as one of five key unlocks.

Connecting RPE with the role of boards

Investor perspectives are a top priority for boards, and 'climate lobbying' has become the most frequent topic of AGM shareholder resolutions. Many of these resolutions call for board oversight of lobbying, and RPE litigation related to net zero greenwashing and NGO action is also becoming more prevalent and better understood than ever before.

RPE must be approached with strategic intent and is therefore the domain of the board. All these issues – the requirements for strategic transition planning, transition planning becoming part of reporting, the risks of misalignment and increasing pressure from investors – speaks to governance and the role of boards.

The central role of boards on these issues is highlighted in a piece in Harvard Law School on Corporate Governance which calls on boards to have oversight over, and question management about, company lobbying. It also calls on boards to make clear their expectations over company approaches to lobbying in terms of its strategy, risks, values alignment, investor expectations and peer best practice.

Likewise the Principles for Effective Climate Governance, developed by the World Economic Forum, make clear boards should ensure that their company discloses all material climate-related risks, opportunities and strategic decisions to all stakeholders – especially investors and regulators (Principle 7) and stay informed on current best practice in climate governance by maintaining dialogue with policy-makers (Principle 8). Transparency International calls for the same levels of oversight and strategic direction on lobbying by the board.

Similarly, the Global Standard on Responsible Climate Lobbying, launched and endorsed by many of the world’s leading investors, calls on companies to “assign responsibility at board level for oversight of its climate change lobbying approach and activities”.

The We Mean Business Coalition of leading corporate networks also stipulates in upcoming guidance that companies consider forming a board committee to oversee climate advocacy.

Echoing this, the G20/OECD Principles of Corporate Governance states that “boards should ensure that companies’ lobbying activities are coherent with their sustainability-related goals and targets”. The Principles further specify that “boards should effectively oversee the lobbying activities management conducts and finances on behalf of the company, in order to ensure that management gives due regard to the long-term strategy for sustainability adopted by the board. For instance, lobbying against any carbon pricing policy may be expected to increase a company’s short-term profits but not be in line with the company’s goal to make an orderly transition to a low carbon economy”.

Likewise, the current OECD drafting of Guidance on Responsible Corporate Lobbying and Political Engagement calls for board oversight and strategy setting on lobbying and notes, in its stocktake of best practice, that such governance is fast becoming standard practice in leading companies.

So it is clear that boards should be thinking deeply about policy gaps that might be hindering their transition journey and considering, how this impacts core business strategy, as well as assessing the risks of misalignment of policy engagement. They need to be clear sighted about the entity’s position on these issues and whether their executives are empowered and accountable to support more ambitious climate policy.

Rising to this challenge, as we approach 2025 we expect to see more board-led initiatives for private sector leadership and coalitions to close the policy gap. These are issues of ongoing focus for a cross-sector WBCSD collaboration and we would welcome discussion with boards on how to integrate these issues into their work.

Jules Peck is a Global Partner at ERM, the world’s largest sustainability advisory firm and a NED on the board of a start-up ESG oriented bank. He chairs the WBCSD working group on Positive Policy Engagement. Jules was an early pioneer of RPE, authoring the first ever publications on the subject: Politics and Persuasion in 2001; and Influencing Power in 2005. He also authored the UN Guide for Responsible Engagement in Climate Policy, which is the basis of the RPE Global Standards.

Dr Jennie Dodson is Senior Director for Policy & Advocacy at the World Business Council for Sustainable Development (WBCSD), leading the organisation’s strategy on Positive Policy Engagement, public-private collaboration and engagement in multilateral fora. Jennie was previously Head of Mission Innovation, the global political action forum for clean energy innovation launched by world leaders at COP21. Jennie sits on the Oversight Group of the Breakthrough Agenda and is an advisor to Global Optimism.

Further resources

• Responsible Policy Engagement – RPE - We Mean Business Coalition
• Corporate climate policy engagement: A briefing for board directors | Climate Governance Initiative
• WBCSD Positive Policy Engagement Advisory Board
• Moving transition from plans to action: A transition planning primer | WBCSD and ERM