Some Dutch-listed companies are making progress on biodiversity targets, and supply chain labour conditions, but many still lag on lobbying transparency, according to a report by VBDO, the Dutch Association of Investors for Sustainable Development.
VBDO’s ‘AGM Engagement Report 2023: Moving Forward Together, Navigating Social and Legislative demands for Sustainability’, reviewed 33 Dutch listed companies, as part of its annual stock take.
The results of this research and the outcome of the questions they ask at shareholders’ meetings form the AGM engagement report, based on the themes for 2023; lobbying, supply chain labour conditions, and biodiversity.
VBDO introduced lobbying as a new engagement topic, and due to the influence of lobbying on sustainability legislation, VBDO expects companies to provide transparency regarding their lobbying activities, and to align these activities with material sustainability objectives.
Lobbying
On lobbying, the VBDO report found many companies refer to lobbying activities in their annual report, and a substantial minority provide some transparency about either their direct or indirect lobbying activities.
However, very few leverage lobbying activities to contribute to sustainable and ambitious regulation, or engage with industry associations to align lobbying with sustainability.
Out of the 31 companies engaged with – which it did not name – only one has been placed in the Learning category; the other 30 are in the Lagging category.
However, five of these companies have achieved scores which bring them near to the threshold of the Learning category. In addition, some companies explained they are lobbying responsibly, but do not report on this yet. Therefore, VBDO expects many more companies to make it into the Learning category next year.
VBDO was glad to find 71% of the companies make reference to their lobbying activities either in their strategy or annual report. This equates to 22 out of the 31 companies assessed.
The majority (83%) of companies in the financial and technology and electronics sectors meet this criterion. This stands in contrast to the industry sector, where only half of the companies refer to their lobbying activities.
Also, 35% of companies in scope support lobbying coalitions that specifically lobby in support of relevant sustainability goals, typically the Paris Agreement.
More than a third (39%) of the companies disclose their memberships of industry associations, lobbying alliances, and coalitions.
Nevertheless, VBDO sees much room for improvement in this area.
“After all, only when companies are transparent about their memberships, will they be able to take responsibility for their lobbying activities,” it said.
“Transparent disclosures enable companies and stakeholders to monitor progress towards responsible lobbying practices, as defined in the companies’ responsible lobbying policies,” it added.
Few companies report extensively about their direct and indirect lobbying practices. VBDO wants companies to increase transparency in this regard, in terms of activities, objectives, and costs.
“This enables stakeholders, governments, and civil society to monitor how companies seek to impact (sustainability) legislation,” it said.
Companies should also think strategically about using lobbying to work toward more ambitious sustainability legislation, VBDO said.
It wants companies to monitor the industry associations of which they have memberships for “any misalignments with material sustainability objectives and seek to correct them if detected”.
Biodiversity
On biodiversity, VBDO found improvements among the companies it reviewed. However it added “companies should place more focus on drafting biodiversity strategies and setting biodiversity targets that are backed up by a risk and dependency assessment”.
This is the second year VBDO has engaged with companies on biodiversity. Four companies progressed from the Learning to the Leading category and four companies moved from the Lagging to the Learning category.
The financial sector obtained the highest score on biodiversity and also showed the biggest improvement since last year. None of the companies regressed to a lower category.
The majority (90%) of the companies made a reference to biodiversity in their strategies (2022: 85%), but few of the engaged companies identified biodiversity as a material topic.
According to VBDO, biodiversity should be a material topic for most of the companies, also those that make a significant impact on biodiversity through their value chain.
This year, the percentage of companies that carried out a detailed biodiversity assessment mapping specific impacts, dependencies, financial risks, and opportunities increased (2023: 30%; 2022: 21%).
Even though less than half of the engaged companies have a specific biodiversity strategy in place, most (90%) have at least one implementation measure in place to reduce their negative impact on biodiversity (2022: 76%).
Additionally, 60% of the companies engaged with undertake measures that aim to preserve, regenerate, and restore biodiverse areas and ecosystems, which is a large increase on last year (2022: 47%).
A small improvement can also be seen in the percentage of companies that have developed one or more transformative solutions related to biodiversity (2023: 40%; 2022: 38%). Since these transformative solutions are the best way to achieve a positive impact on biodiversity, they should be the focus of a company’s implementation measures.
Labour conditions
On labour conditions in the supply chain, VBDO’s report found over the last year, more companies have developed a strategy to improve these and report about specific outcomes.
However, it added many companies still need to significantly improve their efforts.
This year, four companies moved from the Learning category to the Leading category, for labour conditions, and one company moved from the Lagging to the Learning category.
All companies in the research have made a formal commitment to improve labour conditions in the supply chain. Six now comply with all the criteria VBDO uses to assess companies’ actions on labour conditions in the supply chain, compared to just one company last year.
For a second consecutive year, an increasing percentage of companies have developed a strategy to improve labour conditions in the supply chain (2023: 71%; 2022: 59%).
At the same time, for a third consecutive year, there has been an increase in the percentage of companies that publish the specific outcomes of these strategies (2023: 40%; 2022: 26%).
Over the next few years, VBDO expects more companies to increase their efforts on improving labour conditions in the supply chain.
From the financial year 2024 onwards, companies will need to adhere to the standards of the Corporate Sustainability Reporting Directive (CSRD), which mandates that all companies in our scope will need to report how their business models and strategies are aligned with the UN Guiding Principles.
In addition, all companies will need to report about the process they take to identify and assess material labour conditions in the supply chain and related impacts, risks and opportunities.