The Good, the Bad, and the Ugly: Corporate Policy Influence under scrutiny in the age of SDGs

Jacob Messina, CFA
Head of SI Research

Eleanor Willi
Sustainability Specialist

Policy Influence Defined

What it is and what it costs

Policy influence can take many forms spanning advocacy – general efforts to educate a constituency or the general public, to outright lobbying2 – an organized attempt by private individuals or groups to influence legislation.

These organized attempts come from a variety of actors, ranging from concerned citizens, non-profits and public interest groups, to individual corporations, or groups of corporations in the form of trade associations.

Corporations can be strong voices supporting policy that improves economic and social welfare.

Examples of Policy Influence Channels

  • Political contributions to parties or candidates
  • Marketing campaigns related to referendums or proposed legislation
  • Funding “think tanks” that publish policy papers or draft entire legislation
  • Sponsoring scientific research and academic studies

As we shall see, policy influence can lead to positive and negative outcomes for society. In 2016, an estimated USD 3.2 billion was spent on lobbying in the United States, a level that has remained stable in recent years.3 At the same time, the contributions from the top 50 EU companies totalled EUR 106.4 million. While the EU figure might not seem significant, it is a 40 percent overall increase since 2012.4

These amounts cover only one policy influence channel, namely lobbying, so they significantly underestimate the full extent of resources deployed by companies. Given the amounts spent on policy influence, it is worth the effort for stakeholders to ensure they are appropriately and effectively used.

Given the amounts spent, it is worth the effort for stakeholders to ensure they are appropriately and effectively used.

1 Information on UN Sustain-ability Goals is available at
2 Also known as ”interest representation”
3 Center for Responsive Politics,

Driving (or Impeding) Sustainable Development

Power plays: the greater good vs guarded self-interest

Corporate leadership on societal challenges like climate change and (more broadly) SDGs, can have a sizable effect. Implicit in the SDGs is the expectation for corporations to increase their efficiency, decrease their negative externalities, (in the form of environmental and social damage), and generate positive impact. Furthermore, an increasing number of investors want to allocate capital to companies that are advancing the goals. For these reasons, scrutiny from investors specifically, and stakeholders generally, is expected to increase. Corporations must therefore be clear and transparent on their positions on issues, the causes they support, and the amounts and types of funding they provide – both those which obviously contribute to SDG goals as well as those which might be seen as impeding them.  

Just as companies can apply expertise to maximize their SDG contributions, they can also use it to positively facilitate the policy-making process. Companies and industry groups often enable better-informed decisions, by providing policy makers with data, knowledge and industry-specific perspective that may have been overlooked in the general debate. But the motives and outcomes of some companies are, at times, at odds with what is beneficial to society.

The latter is exemplified by a company whose main objective is to maximize firm profits while eternalizing costs to the general public. These companies seek to exert influence to protect inefficiencies and the status quo, which in many cases, is seriously damaging the health of people,
the health of the environment, and the health of the economy. Instead of working towards a society that is more efficient and sustainable based on the best available scientific, economic, and sociological evidence, they instead obfuscate arguments and data, thereby preventing optimal economic performance and social progress.


Sweet turned sour

For example, in the 1960s, the Sugar Research Foundation, representing the sugar industry, sponsored research designed to cast doubt on the link between sugar consumption and coronary heart disease. The foundation set objectives, contributed articles and received drafts of research papers (presumably for review and “approval” before their publication) that emphasized the role of fat and cholesterol in heart disease and downplayed the risk from sugar (sucrose).5 Decades of health policy was guided by this erroneous and at times fraudulent research. Only in recent years have the hazards of sugar emerged, but even today many remain misinformed. Frightening still, is the fact that the damage caused in developed markets is now being replicated in emerging markets.

5 Cristin E. Kearns, et al. Sugar Industry and Coronary Heart Disease Research: A Historical Analysis of Internal Industry Documents. JAMA Intern Medicine 2016, 176(11):1680-1685

Policy influence can lead to positive and negative outcomes for society.

Although there were clear due-diligence failures on the part of regulatory bodies, our focus is on the implications arising from the policy influencing process.

Important questions that surface for sustainable investors would be to what extent corporations financially contributed to this disinformation campaign? More importantly, how much money was spent by other entities (e.g. citizens, academic institutions, other corporations, etc.) to sub-sequently counter and contain the spread of the Sugar Foundation’s claims?

How much money was spent on litigation, fines and settlements to resolve disputes arising from the competing campaigns? What was the opportunity cost and losses for other businesses that behaved ethically and created sustainable value for society, but suffered because   their customers were misinformed?

And the trillion-dollar question – how much have these claims adversely affected health and quality-adjusted life-years (QALY)6 on a global scale? These are not easy questions to answer, but with certainty we can say they are real, they are innumerable, and their negative effects are still accumulating.

6 QALY- a generic measureof disease burden. Includes quality and quantity of life lived and is used to assess the value for money of medical interventions. One QALY equates to one year in perfect health.

Un-leveling the playing field – a risky business for firms and their investors

The damage of dirty deals goes farther than the firm

Social awareness is increasing as information becomes more easily accessible, reporting improves, and the costs related to policy influence become clearer. Companies with dubious deals and dirty deeds face three distinct risks.

First, there is the direct business risk inherent in overreliance on government support. For example, the oil & gas industry’s reliance on fossil fuel subsidies. Second, is the reputational risk stemming from excessive political contributions and lobbying expenditures. These could be direct or indirect, and could be construed as damaging the public interest causing loss of customer trust and defections. An illustrative example is described later with the pharmaceutical industry.

US companies have been extremely vocal about their support for the Paris Agreement.

Finally, there is the risk of corruption, which could be strictly speaking, legal, and simply contribute to the inefficiencies we describe above. On the other hand, it could also be considered illegal if civil or criminal violations occur. The risks listed here and the opaqueness of the process, contribute to negative perceptions of a firm’s policy influence activities by the broader public and investors.

The positive side of policy influence is represented by strong corporate voices stepping up and taking leadership on complex issues – which can generate significant positive reputational benefits. For instance, in the absence of more forceful climate policy measures by governments around the world, there is a growing role for corporate leadership in confronting the challenge of climate change. US companies have been extremely vocal about their support for the Paris Agreement and have buoyed their sustainability credentials by speaking out against Trump on the issue.7

Many respondents to our questionnaire cited positive engagement efforts on global challenges like climate change and green building. However, our research also shows that these positive activities are far outweighed by the negative. Furthermore, the positive are often only necessary because other actors have promoted detrimental policies, that creates a combative-defensive dynamic between companies and stakeholders and larger society. In the end, this increases overall economic costs and decreases the likelihood of optimal outcomes.

The Rationale and Results of RobecoSAM’s Policy Influence Criterion

The details of disclosure

As RobecoSAM seeks to distinguish those companies creating long-term, sustainable value, we added a Policy Influence criterion to our 2017 Corporate Sustainability Assessment (CSA).

We had two important findings: First, levels of spending vary widely, by company, sector and region. Second, a very limited number of companies broadly and liberally disclose their spending in the various policy influence areas.

During our methodology development process for the 2017 DJSI, we focused on alignment with internationally respected ESG frameworks, and identified Policy Influence as a criterion that we expect to become increasingly important to investors. This was largely due to the increasing importance of SDGs for investors interested in impact investing.

Given the newness of the topic and the need to establish baseline data, we evaluated the responses strictly on transparency; there was no judgement on spending levels or spending trends, nor did we critique whether the top five issues/items were good or bad. Companies were assessed on the basis of their level of disclosure both in the CSA and in the public domain. Top scoring companies were those who clearly and transparently shared their contributions both across time and across different topic/organization types, and those that provided aggregate figures and amounts in their own public reporting (e.g. not with links to other sites). In the spirit of disclosure, all assessed companies’ performance on this Policy Influence criterion (as all companies’ rankings relative to their industry) is shared with the public via Bloomberg.

New Questions for Companies

We asked companies to:

  1. disclose their total spending on policy influence efforts over the last four fiscal years
  2. specify the top five recipients of those contributions: grouped into organizations, candidates, or issues 

Expenses vary by sector: sectors with the most to gain, fight the fiercest

We find that the average amount that companies spend on lobbying (normalized by revenues) varies significantly by sector. The notable high end is observed in health care and financials, followed by materials, real estate and utilities. This concurs with a recent European Central Bank study showing firms in more protected sectors, (i.e. firms from non-tradable or highly regulated sectors) tend to spend more for lobbying activities.8

The impact is clear – firms with higher lobbying expenditures have higher profits and are less productive, since they are operating in closed or highly concentrated markets. These firms are successful at protecting their own profits and interests even at the expense of greater society. In the mid-term, engaging in this behaviour enriches owners of incumbent firms who benefit from favourable regulatory and policy regimes. But from a business perspective, even in the short and mid-term, innovation and competition are stymied. In the long term, from a social and environmental perspective, human health, the environment, and social welfare are harmed.

Firms with higher lobbying expenditures have higher profits and are less productive.

When protection is poison

Healthcare, with the highest level of policy influence spending of all industries, is a prime example. Healthcare companies provide essential products, services and innovation that help billions of people lead healthier lives. However, the industry’s extensive policy influence activities have helped to create unsustainable health systems around the world, most notably in the US.

The US spends 18% of its annual gross domestic product on health care ($3.2 trillion in 2015), compared to 9% for peer countries, yet health outcomes are no better, and are, in many cases, worse.9 The US health system needs massive reform to address its unusually high levels of spending; ideally it would reduce spending by half to $1.6 trillion annually. Imagine the benefits to the overall US economy if policy influencing funds were directed into more productive economic areas like infrastructure, education or universal health insurance – all of which are woefully under-funded.

Drug pricing is an area where drug makers exercise protectionist tendencies.

Drug pricing is an area where drug makers and industry groups exercise protectionist tendencies. Drug makers routinely charge exorbitant prices citing the high costs of R&D and clinical trials as justification. Performance of pharmaceutical stocks have suffered during the past two years even while, overall, markets are booming. The S&P Pharmaceuticals ETF declined 22% while over the same period the S&P 500 increased 27%.10

We would posit that sector performance has been hurt by negative investor sentiment regarding the escalating debate on drug pricing in the US. Although difficult to quantify, recent high profile scandals in drug pricing and data falsification have certainly influenced this decline by casting doubt on pharma product’s efficacy and pharma management’s ethics. Regardless of the precise reason, investors recognize that the current situation in the US is unsustainable.11

One could easily proceed through similar analyses of other industry sectors (e.g. financials or materials) where massive windfalls result from entrenched interests. In the aggregate, firms engaging in inappropriate policy influence activities cause massive inefficiency for the overall economy and damage the environment, individuals, businesses, and investors. The real losses in economic as well as social terms are unimaginable.

Firms engaging in inappropriate policy influence activities cause massive inefficiency for the overall economy.

Figure 1: Who spends more?
Average Company’s Yearly Spending as a Percentage of Total Revenues

10 Source: NYSE ARCA, performance data is for the period December 11, 2015-Dec 5, 2017.
11 “Global pharma sales forecasts cut amid pricing pressures,” D. Crow, June 20, 2017, Financial Times

Trade and business associations are key

As can be seen from the graph below, contributions to trade associations far exceeded more direct spending on lobbying, campaigns, and other explicitly political organizations.

While this is clear from responses to the CSA, companies’ public disclosures on their policy influence spending rarely extend to the details of membership fees paid to industry and trade associations. This is a large gap that should be better understood and explored.

Figure 2: The money trail
Largest Contributions & Expenditures - Recipient Organization Types Named

Degrees of difference between developed and emerging markets

Given 2017 was the first year we canvassed companies on the topic, we were not surprised to see that public disclosure is fairly low, ranging from 15% in the Asia Pacific region to 51% in North America. However, companies responding to the RobecoSAM CSA are clearly able to report this data, with 62% of Emerging Markets companies disclosing the information, and almost 83% in North America.

These regional differences likely reflect both the variance in the perceived salience of the topic as well as the extent of regulations on mandatory disclosures. However, with the introduction of the topic to the CSA, we expect public disclosure to increase significantly over the next several years, as occurred after we introduced the Materiality and Tax Strategy criteria in 2014 and 2012, respectively.

Figure 3: Disclosure around the world
Companies’ Contributions & Other Spending by Region

Looking Ahead

Policy influence is a double-edged sword. If used appropriately, it could accelerate societal progress; if used improperly, it can impede it. As the example from just one industry has shown, companies which misuse their power and influence to protect their own interests often do so at the expense of society as a whole.  

However, protectionist measures are becoming more difficult to conceal as stakeholders demand more transparency and disclosure. Firms that use policy channels for corruption and collusion face significant reputational damage from customers and shareholders. Moreover, investors prefer companies who employ disciplined strategy and internal innovation rather than policy supports and subsidies to spur growth. Policy props and distortive subsidies create business risks (if the desired policy is not implemented or continued), legal risks (from corruption) and reduces innovation and efficiency. 

For these reasons, sustainable investors are keen to understand the extent to which their holdings are involved in policy influencing activities.

Whether waking up to investor demands, the monetary benefits of running a business in a sustainable way, or their responsibility as influential agents in society, corporations are beginning to recognize the usefulness of the Sustainable Development Goals (SDGs) for demonstrating their commitment to sustainability principles and to responsible economic stewardship. But whatever the motive, the SDGs have given investors and corporations a new lens through which to evaluate their contributions towards sustainability targets, the resulting impacts they have on the broader economy, and the continuing development of a sustainable global society that offers progress and prosperity for all.

Sustainable investors are keen to understand the extent to which their holdings are involved in policy influencing activities.

Given the universal acceptance, global reach and overall comprehensiveness of the SDGs (that scrutinize both a company’s positive and negative impacts) and the additional reporting that will result from their integration with business and investments, it is in the best interest of both corporations and investors to understand the impacts that come directly from company products, services and operations, and indirectly, through engagement with policymakers.

Sustainable companies actively engage in policy influence as an essential facet of the democratic process, but do so in a manner that is consistent with advancing the public interest Identifying these companies, necessitates the disclosure of spending on policy influence activities. By including the policy influence criterion in the CSA, RobecoSAM seeks to distinguish companies with a clear commitment towards positive policy influence.

We will continue to develop the criterion to this end, incorporating analyses of specific topics and positions, defining and identifying excessive levels of spending, and favouring companies that thrive with minimal policy influence expenditures. In doing so, we help reduce investor exposure to the reputational, legal, and business risks inherent in excessive policy influence, and promote more sustainable investments and more efficient and sustainable economy.

2017 Annual Corporate Sustainability Assessment

companies assessed.
documents uploaded.
data points collected.

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