The Capitol Insurrection: A Wake-up Call for Corporations to Disclose Political Spending
The recent upheaval at the nation’s Capitol caused a flurry of announcements from corporate America on curtailing their political donations. These changes come on the heels of an election in which corporate spending reached an all-time high. While the topic of corporate involvement in policy making and lobbying has been on the radar of ESG experts for years, these recent events have underscored the need for companies to have clear policies and transparent disclosures in place to mitigate risk and protect their reputations.
Scale of Corporate Spending in American Politics
Spending in the 2020 election set new records. Preliminary data from the Center for Responsive Politics indicates that the securities/investment sector alone contributed over $734 million to the 2019-2020 election cycle. The most recent complete figures on corporate spending in policy making are from 2018 and put out by Seventh Generation Interfaith. They show companies spent more than $3.4 billion on federal lobbying, over $1 billion on state lobbying, and undisclosed amounts via trade associations.
The upside to political spending by corporations is that legislators can write better informed laws when they have access to technical expertise and data from the private sector. But the downside is at least the appearance of undue influence, unfair competition or alliances with issues or politicians in conflict with the company’s publicly stated values.
In one recent example, top GOP donors have distanced themselves from the 147 Republican members of Congress who objected to certifying the election results. According to the New York Times, at least 16 companies, including Marriott International, Dow, Airbnb and Morgan Stanley, said they would halt donations to these lawmakers from their political action committees (PACs) following the upheaval at the Capitol. While some major donors like Blackstone Group CEO Stephen Schwarzman were horrified by the “mob’s attempt to undermine our constitution” and pulled funding, others like Lloyd Blankfein, former CEO of Goldman Sachs, expressed caution about severing ties with legislators over a single issue.
Investor Pressure to Disclose Political Spending
Investors are beginning to recognize that reputational risk related to political activities can affect the valuation and long-term viability of a company, prompting demands for more sunlight on the flow of political money. While the SEC has been reluctant to require companies to disclose expenditures on lobbying, pressure is nonetheless increasing in the form of shareholder proposals, and the incorporation of political spending and lobbying activities in reporting frameworks and investor rating agency scores.
In 2019, a coalition of more than 70 investors filed shareholder resolutions with 33 different companies asking for disclosure reports that include federal and state lobbying payments, payments to trade associations and lobbying groups and payments to any tax-exempt organization that writes and endorses model legislation. To date the majority of lobbying disclosure resolutions have failed but we expect to see more pressure from shareholders at annual meetings going forward.
In addition to shareholder proposals, we found in our research that investor rating agencies such as ISS, Sustainalytics and Vigeo Eiris include questions on corporate contributions and public policy activity in their ESG platforms. BlackRock and the Dow Jones Sustainability Index (DJSI) also look at these issues when deciding which companies belong in their universes. The result is a small but growing number of companies voluntarily beginning to disclose political expenditures and involvement with public policy. As of 2017, 25% of S&P 500 companies had board-level policies regarding lobbying, a 9% increase from 2013. In the same year, about a third of S&P 500 companies made public at least some of their payments to intermediary groups such as trade associations, up from 9% in 2010.
Also pushing the trend for reporting are important players such as The National Institute on Money in Politics, which created Followthemoney.org, a resource showing all known lobbying and campaign contributions by all companies, and the Center for Responsive Politics.
In Conclusion…
We are clearly in an upward spiral of money flowing into politics from corporations, but we are also witnessing an upward trend towards disclosure and transparency. SustainabilityNext is monitoring these trends and stands ready to help companies navigate the disclosure of corporate spending on elections and lobbying to ensure alignment with corporate citizenship values.