Pricing Corporate Climate Lobbying

A review of the Kelley-ECGI Lecture “Corporate Climate Lobbying”by Professor Zacharias Sautner on 3th December 2025.

Efforts to price carbon and accelerate the climate transition routinely run into political resistance. Economists broadly agree on the tools—carbon taxes, cap-and-trade schemes, or regulatory standards—yet implementation remains partial and uneven. One reason, explored in a recent lecture at the Institute for Corporate Governance and Ethics by Professor Zacharias Sautner, is corporate climate lobbying: not the visible commitments firms make in sustainability reports, but the quieter, targeted efforts to shape or delay regulation behind the scenes. His paper, co-authored with Markus Leippold and Tingyu Yu, asks a deliberately narrow question. Rather than judging lobbying on moral or political grounds, it asks whether anti-climate lobbying constitutes a financially material risk that investors should care about.

From green cement to political bottlenecks

The lecture opened not with abstract theory, but with a deceptively mundane regulatory episode. Swiss pension funds, acting through a joint investor coalition, urged the European Commission to define industrial standards for low-carbon cement. Cement production accounts for roughly seven percent of global CO₂ emissions, largely due to clinker. New innovative technologies can cut the carbon footprint of clinker by up to 90 percent, but without regulatory standardisation, construction companies cannot use these products at scale.

The request by the pension funds was financially motivated. Pension funds holding shares in large cement producers wanted competitive pressure from low-carbon entrants to accelerate decarbonisation among incumbents. Yet the provision vanished from the final regulation. A likely reason was corporate lobbying by well-connected incumbents whose carbon-intensive business models would have been threatened.

Measuring the unobservable

Corporate lobbying is notoriously hard to observe. It often conflicts with firms’ public climate statements, creating a gap between rhetoric and practice. A striking example came from the now-famous undercover video of a senior ExxonMobil lobbyist, which revealed behind-the-scenes lobbying efforts to undermine US climate legislation while the firm publicly affirmed its alignment with the Paris Agreement.

To measure the magnitude and effects of corporate climate lobbying, the paper constructs a new dataset based on mandatory US federal lobbying disclosures. Since the 1990s, firms and their hired lobbyists have been required to file quarterly reports detailing the issues they lobby on and their total spending. Using automated text analysis, the authors identify climate-related lobbying by scanning issue descriptions for climate keywords and references to climate-relevant bills, including abstract bill codes that require additional mapping. Because firms report only total lobbying expenditures, the authors allocate spending proportionally across reported issues. They also attribute indirect lobbying conducted through trade associations back to individual firms. The result is a firm-quarter measure of climate lobbying intensity.

The second step is to classify this lobbying as pro- or anti-climate. Direct textual inference from the lobbying reports is rarely possible. Instead, the authors infer firms’ climate stance from the private political donations of their senior executives and hired lobbyists, drawing on Federal Election Commission data. The assumption, supported by voting records and major legislative episodes such as the Inflation Reduction Act, is that Democratic alignment signals support for stricter climate policy, while Republican alignment signals opposition. Importantly, executive donations exhibit stark partisanship, suggesting that this proxy captures meaningful ideological differences rather than opportunistic hedging.

Who lobbies, and why

Roughly ten percent of firm-years involve anti-climate lobbying, and just under nine percent involve pro-climate lobbying. Conditional on lobbying, anti-climate spending averages about USD 280,000 per firm-year, compared with USD 180,000 for pro-climate efforts, with substantial skewness at the top.

The largest anti-climate lobbyists are concentrated in utilities and fossil fuels, including ExxonMobil, Chevron, BP, and major power producers. Yet the data also show significant within-industry variation. In utilities, firms reliant on coal and gas lobby against climate policy, while those with greater exposure to nuclear or renewables tend to lobby in favour. Clean innovation matters: firms with more low-carbon patents are more likely to engage in pro-climate lobbying.

Over time, firms increasingly “camouflage” climate lobbying by relying on opaque bill codes rather than explicit climate language. By 2022, only a small fraction of some firms’ anti-climate lobbying could be detected using keywords alone. This declining transparency is precisely what large investors have flagged as a concern. 

Lobbying as a priced risk

The most intriguing result concerns financial markets. Do investors price climate lobbying risk? The analysis suggests they do. Firms that engage more intensively in anti-climate lobbying earn higher average returns in the post-2010 period, even after controlling for emissions. Far from being a statistical artefact, this result survives alternative specifications, cost-of-capital measures, and portfolio tests.

Crucially, the authors argue that this pattern reflects a risk premium rather than mispricing or simply a better financial performance. Event studies show that when lobbying disclosures reveal anti-climate activity, market valuations fall, implying higher expected returns going forward. Returns are also sensitive to climate policy news. When regulatory uncertainty falls, such as after the collapse of the Waxman–Markey cap-and-trade bill, anti-climate lobbyists’ valuations rise. When uncertainty increases, as with the unexpected passage of the Inflation Reduction Act, they fall. These patterns are consistent with a priced transition risk rather than surprise profitability.

From this perspective, anti-climate lobbying can be understood as a bet on delayed or weakened regulation. While it may protect cash flows in the short term, it increases exposure to transition, reputational, and political risks and can constitute a financially material investment risk. This interpretation aligns with assessments by ESG data providers and with shareholder proposals filed under initiatives such as Climate Action 100+, which explicitly frame misaligned lobbying as a threat to long-term shareholder value.

Implications for governance and policy

The findings imply that anti-climate lobbying is not merely a political externality but constitutes an investment risk. It appears to be associated with higher expected returns because it exposes firms to greater long-term risk. For boards, this raises governance questions about oversight of political engagement and alignment between lobbying and stated strategy. For investors, it suggests that climate lobbying deserves the same scrutiny as emissions or capital expenditure plans.

More broadly, the research highlights a structural tension. Firms may rationally lobby to delay regulation in the short term, yet markets increasingly treat that strategy as risky. Transparency emerges as a central issue: without clear disclosure, investors cannot assess whether lobbying activities undermine transition plans or entrench exposure to future policy shocks.

As climate policy continues to evolve, corporate lobbying is unlikely to disappear. What this evidence suggests is that it already carries a price. Whether firms and regulators respond with greater disclosure, stronger board oversight, or new governance norms remains an open question—one that sits squarely at the intersection of corporate governance, law, and financial stability.

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This lecture is part of the Indiana University - ECGI Online Series, a public lecture series on corporate governance. The Kelley School of Business Institute for Corporate Governance (ICG+E), in partnership with Ethical Systems, collaborates with ECGI to deliver this ongoing initiative. As part of this public lecture series, distinguished speakers share insights on the evolving landscape of governance, finance, and market regulation.