For investors, corporate spending on elections has come into sharper focus over recent years and remains a hot topic ahead of November’s presidential election.
Center for Political Accountability (CPA) research highlighted in the 2020 Proxy Preview report found that public companies and their trade associations accounted for 46% of the $1.3 billion collectively raised by major partisan committees between 2009 and 2018.
Such groups’ stances on climate change, diversity and inclusion, and other critical issues can clash with the underlying corporate donor’s stated values and policies, creating possible reputational risks and misalignment with investors’ social or environmental interests.
Spotlight on Disclosure
Transparency is a key issue in US corporate political spending, with nondisclosure potentially hindering investors from assessing where companies stand on material environmental, social, and governance (ESG) issues. For instance, unbeknown to shareholders, corporations could be wielding their influence to support political agendas that weaken environmental protections, workers’ rights, or corporate governance rules. Corporate spending on elections is therefore relevant to many aspects of the ESG framework.
According to the Forum for Sustainable and Responsible Investment (US SIF), achieving transparency around corporate election spending is a challenge. A 2010 Supreme Court ruling empowered firms to spend unlimited amounts of money in federal elections to support or defeat a candidate for public office, provided they do not coordinate with a candidate’s campaign. Although it remains illegal for corporations to make direct donations to candidates in federal elections, they may be allowed to make such direct interventions at the state level. At the same time, federal law does not require firms to disclose direct political spending, such as election advertising, though state law may require them to do so. Even existing disclosures can be challenging to track, as companies do not necessarily make them in a standardized way.
Investors Engage on Corporate Election Spending
According to Proxy Preview, support for proposals seeking transparency on corporate political spending hit a record 36% in 2019. (Pensions & Investments reports that support among institutional investors was only 20% in 2015.) Proxy Preview also notes that the last calendar year saw two majority votes on political activity proposals and nine more garnering over 40% support. Among the apparent successes in 2019, telecommunications giant AT&T agreed to increase reporting on the lobbying-related spending that passes through its trade associations.
Each year, the CPA files proposals at companies asking them to produce regular reports on their political spending, including details on their monetary and nonmonetary donations. This year the CPA increased its efforts, aiming to file the proposal at 40 companies, according to Proxy Preview. It withdrew the proposal at MGM Resorts International after the casino operator agreed to adopt the CPA’s policy and disclosure model.
Whatever the result of November’s presidential vote, corporate spending on elections promises to be an important issue for some time to come.