TODAY’S STUDY: CORPORATIONS LIE

A Climate of Corporate Control; How Corporations Have Influenced the U.S. Dialogue on Climate Science and Policy

May 30, 2012 (Union of Concerned Scientists)

Executive Summary

Corporations in the United States have always taken part in public policy debates. Weighing in on proposed policies is of course their right, especially when the policies in question could affect the well-being of their enterprise. But some companies have used their extensive resources to misrepresent and misuse science at the public’s expense, and in recent years this inappropriate activity has become more visible and pervasive (UCS 2012).

Cases of such corporate intrusions have been observed in a variety of places where science is used to inform federal policy. They range, for example, from interference in the Food and Drug Administration’s approval of medical devices (UCS 2009) to the blocking of a national ground level ozone standard proposed by the U.S. Environmental Protection Agency (EPA) (Broder 2011). And increasingly, climate science is being used as a political football, with companies and their allies creating confusion around the science in an attempt to delay regulatory action.

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This analysis of corporate interference uses climate change as a case study to reveal how commercial interests attack science and act in other ways to undermine policies that would impact their bottom lines. While some American companies have different venues. Even while cultivating a climate concerned image in more public settings, these corporations have sown doubt about climate science both directly (such as by challenging climate science in government filings) and indirectly (e.g., by supporting politicians, trade groups, and think tanks that misrepresent the scientific consensus on climate change and oppose action to address it). This powerful subset of companies has been tremendously influential in dictating how the public understands (or misunderstands) climate science and how the national discussion on climate policy has progressed—or not progressed.

Though much of this influence is revealed in our full report, the scope of our research is limited by a lack of transparency in corporate affairs. Because publicly owned companies are legally required to disclose only minimal details about their political and financial activities, our findings likely represent an incomplete picture of the total influence they exert.

Increased transparency is thus needed to cast light on corporate activities in public policy discussions, and we recommend several specific actions that corporations, government, investors, and consumers can take to guide the nation toward greater corporate accountability.

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A Systematic Approach

We explored the roles that 28 publicly traded corporations played in the national climate conversation during 2009 and 2010, when several climate change policy proposals were being considered. These companies were selected from among the S&P 500, either because they (a) commented publicly on the EPA’s finding that heat-trapping gases endanger public health and welfare (EPA 2009) or (b) contributed to campaigns for or against Proposition 23, a 2010 ballot initiative in California that would have suspended the state’s global warming mitigation law (California Secretary of State 2010).

To evaluate the degree to which each company in our sample helped or hindered the dialogue surrounding climate science and policy during the study period, we considered a range of corporate actions (Figure ES1) and categorized each company as Consistent, Contradictory, or Obstructionist (Figure ES2, p. 4).

Corporate Influence on Climate Science Is Widespread

While some companies are consistently taking actions in support of climate-action policies, others are aggressively working to undermine climate science and obstruct science-based policy efforts at every opportunity (Figure ES3, p. 5). In particular, much misinformation about climate science is being promulgated by several energy-producing companies. These companies influence the conversation on climate change through direct statements in public spaces, sizeable political contributions and lobbying expenditures, and the funding of trade groups and think tanks.

Though these companies are a small subset of American corporations, they disproportionately and adversely influence the dialogue by eroding the public’s understanding of climate change and weakening support for science-based climate policy.

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Contradictory Companies Create Confusion

A number of the companies considered in this report assumed different positions on climate change within the same time period (Figure ES4, p. 6). These companies took contradictory actions or made statements in support of climate science and policy in some public venues while spreading misinformation on climate science or hindering science-based policy elsewhere. While all companies in our sample stated they were taking voluntary internal action to reduce carbon emissions, half of them also misrepresented some element of established climate science in their public communications.

Our research suggests that companies are more likely to accept climate science and express a commitment to climate action in venues directed at the general public, and are more likely to misrepresent climate science and oppose action in venues directed at the federal government or that involve the outside organizations they fund.

A Lack of Transparency

When the influences behind public policy making are concealed, which we have found to be the case with national discussions surrounding climate change, the democratic processes of our federal government are vulnerable to commercial and political exploitation. This lack of transparency enables companies to steer the national discourse from behind closed doors, manipulating public understanding of climate science and skewing policy discussion in favor of corporate priorities.

Because commercial interests are often not aligned with the public interest, the disproportionate influence of corporations in discussions of climate policies harms the public good. But casting light on corporate political activities can help hold companies accountable to investors, policy makers, and the public.

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Support for Outside Organizations

Greater transparency is needed with respect to corporations’ support of outside organizations. Although corporate foundations are legally required to disclose their donations to the Internal Revenue Service, companies can circumvent this requirement by giving directly, rather than through their philanthropic arms, to outside groups (Kahn 1997). A recent study conducted by the Center on Philanthropy at Indiana University estimated that only 31 percent of all corporate donations are made through corporate foundations (Giving USA Foundation 2011).

Although this report’s research has uncovered several affiliations between our sample companies and outside organizations that work on climate science or policy (Figure ES5, p. 8), we cannot claim that their corporate contributions were used specifically for climate work. Nevertheless, while many of the organizations receiving corporate support represent trade interests or try to advance public-interest causes, some of these groups take starkly anti-science positions on climate change and work aggressively to challenge climate science and science-based climate policies.

Congress and company shareholders alike have attempted to require companies to disclose their corporate giving. Several corporations, including General Electric Company, have received shareholder proposals requesting a list of charitable contributions (Tonello 2011). In 2009, shareholders of Waste Management, Inc. proposed greater disclosure of political contributions so that positions taken by supported groups—Waste Management has a seat on the board of the National Association of Manufacturers (NAM), for example—would not run counter to the company’s stated goal of corporate leadership on climate change. The resolution read, “Without disclosure, it is impossible for shareholders to know whether Waste Management payments to [the] NAM are used for the group’s political activities, including those opposing climate change legislation” (IBT General Fund 2010).

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Political Contributions and Lobbying

Companies in the United States are required to report some information on their corporate giving and political activity to the federal government; these requirements, however, are wholly insufficient to determine the full impact that corporations are having on federal policy related to climate change and other issues of public interest.

Specifically, publicly traded companies are required to report the amounts they spend on direct political contributions and lobbying (Table ES1), but they do not need to disclose the particular issues for which these contributions are targeted. In addition, companies do not need to disclose many indirect political contributions, such as their donations to outside organizations that are politically active. As a result, we cannot determine the extent to which corporations are lobbying politicians on climate policy.

In response to this lack of transparency on corporate political activity, the federal government and company shareholders have called in recent years for greater disclosure. In April 2010, President Obama proposed an executive order that would have required government contractors to disclose more details about their direct and indirect political spending; Luis Aguilar, a commissioner of the U.S. Securities and Exchange Commission (SEC), recently echoed this sentiment. “Unfortunately,” he said, “there is no comprehensive system of disclosure related to corporate political expenditures—and that failure results in investors being deprived of uniform, reliable, and consistent disclosure regarding the political expenditures of the companies they own” (Blumenthal 2012; Kennedy and Skaggs 2011). Moreover, a recent report found that nearly a third of the shareholder resolutions prepared for the 2012 corporate annual meeting season ask companies for more disclosure about their direct and indirect campaign spending and lobbying (Welsh and Passoff 2012).

Business Risks from Climate Change

Many companies are also not fully transparent regarding their disclosure of business risks associated with climate change.

The SEC obligates all publicly traded companies to discuss risks that might materially affect their business in their annual Form 10-K filings (SEC 2009). In 2010, the guidance for the Form 10-K specifically suggested that companies consider and discuss any significant risks to their business from climate change—both from its physical effects and from impacts of climate regulations (SEC 2010).

The guidance also included a reference to scientific research on the physical effects of climate change and the risks to businesses (GAO 2007). Some companies in our sample, such as Progress Energy, Inc. and AES Corporation, fully considered these climate-related risks in their Form 10-K filings.

Two companies, however, General Electric Company and Boeing Company, failed to mention climate change at all in their 2009 and 2010 Form 10-Ks. Many others discussed the impacts that regulation would have on their business while not commenting on the physical effects of climate change itself.

The failure of some companies to seriously consider climate change in their business risk assessments, even when specifically requested to do so in a government form, demonstrates a need for strengthening SEC requirements to ensure that companies are fulfilling their responsibilities to investors and the greater community.

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The Path Forward

Inappropriate corporate influence on the national dialogue on climate science and policy is large-scale and complex, spanning multiple venues from the public spheres of government relations and media outlets to the more covert realms of think tank funding and political contributions. In turn, the solutions for reducing this influence will also be large-scale and complex, requiring fundamental changes in how corporations and the federal government operate and interact. Transparency and accountability will need to be inherent to corporate-government relations, and the loopholes and mechanisms that allow corporations to inappropriately influence political processes will need to be eliminated.

A range of specific near-term actions can be taken by corporations, government, investors, and consumers that will put the United States on the right path. These recommendations would hold companies accountable for their statements and actions while laying the foundation for an honest conversation on science based climate policy:

• Companies should disclose more information on how they influence the conversation on climate change and other issues of public interest—both directly through public engagement and indirectly through political activity and support of outside organizations. Further, companies should thoroughly consider and disclose climate-related business risks.

• Congress should investigate ways to require more disclosure of corporations’ political activities, including their contributions to candidates, lobbying expenditures, and donations to politically active organizations. Congress should also hold companies accountable for these actions.

• The Securities and Exchange Commission should require companies to disclose their political contributions and to report annually whether climate change poses any risks to their business, including those specifically related to the physical impacts of climate change.

• Investors and consumers should continue to work both individually and collectively to advance demands for transparency, accountability, and integrity in the private sector, especially with respect to corporate memberships and donations to trade groups, think tanks, and other outside organizations.

• The media should be mindful of potential conflicts of interest among the experts and other individuals they rely on for information, and disclose such conflicts when found. Research methods can be found in Appendix A, and references for figure information in Appendix C, of the full report, which is available online…

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