Eleven years after the Supreme Court’s Citizens United ruling opened the floodgates for corporate political spending, the movement calling for greater transparency around “dark money” activities is gaining steam—both inside the Beltway and in boardrooms across the country.
While Citizens United granted special-interest groups the freedom to spend unlimited amounts on political causes, lately there have been heightened calls among regulators and lawmakers to hold corporations more accountable for their political expenditures. Last week saw Gary Gensler, President Biden’s nominee for chair of the Securities and Exchange Commission, tell senators at his confirmation hearing that the SEC should consider more stringent rules requiring public companies to disclose their political spending activities. Democratic senators have also recently reintroduced legislation that would impose similar disclosures.
But pressure is ramping up outside D.C., as well. With an estimated $750 million in dark money contributions having poured into last year’s U.S. elections, corporate political spending has increasingly become a shareholder concern in line with other environmental, social, and governance (ESG) criteria. More than ever, it is influencing how investors choose to allocate their funds and is prompting companies to take action on their own to provide shareholders with more transparency.
“This is a newer issue in the ESG space,” says Josh Levin, cofounder and chief strategy officer at OpenInvest, an ESG-focused investing platform. The San Francisco–based startup provides investors with nearly two dozen different social impact “causes” to which they can tailor their stock portfolios—overweighting companies with exceptional track records in a given cause, while divesting those that are lagging behind on the issue.
Since launching its “Divest From Dark Money” cause in 2018, Levin says OpenInvest has seen a demonstrable trend of companies choosing to disclose more information about their political spending. OpenInvest provided its latest update to the dark money index this week, spotlighting the S&P 500 outperformers on its “investment list”—including much-improved companies like DuPont and Hilton—while noting the likes of Netflix, Tyson Foods, and Hanesbrands as chronic underperformers on the “divestment list.”
“I think a lot of companies have decided it’s a reputational risk,” Levin says of businesses moving to heighten their political spending disclosures. He cites how pressure has ramped up in the wake of the violent insurrection in the U.S. Capitol on Jan. 6—after which scores of companies suspended political donations amid fears of a backlash from activists and shareholders.
To create the index, OpenInvest partnered with the nonpartisan, nonprofit Center for Political Accountability and used the group’s CPA-Zicklin Index, which benchmarks S&P 500 companies’ political spending practices and disclosures. CPA president Bruce Freed tells Fortune that he believes scrutiny of corporate America’s political spending activities has reached “a critical mass”—one in which all major companies “are expected to follow suit” and disclose their expenditures to shareholders and the wider public. He notes that the CPA-Zicklin Index now shows that roughly three-fifths of S&P 500 companies have “some level of political disclosure,” while around half have “some level of board oversight” over their political spending.
“This is important because political spending poses a risk to companies,” Freed says. “And how do they manage that risk? Through disclosure and oversight. Otherwise, you’ll have reputational harm and bottom-line harm. You’ll find consumers shifting buying patterns and employee morale hurt.”
Despite the trend toward increased transparency around corporate political spending, pro-business groups balk at the notion that government regulation is required to hold companies more accountable—be that through new SEC rules or legislation being floated in Congress.
“The business community, like other entities, has free speech rights and the right to petition the government,” according to Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. “Some of these efforts are being taken to silence the business community from exercising those rights.”
Quaadman notes that labor unions, which have also benefited from the Citizens United ruling in their ability to make political donations, would not be held to the same disclosure requirements as corporations under the proposals being floated by regulators and lawmakers. “Why don’t we have similar requirements for unions’ political spending? It’s a very one-sided effort.”
But regulatory and legislative action aside, it appears that the push toward more transparency and accountability around how companies splash political cash is being driven by the market—as evidenced by initiatives like OpenInvest’s dark money index.
“I feel like there is a need to go directly to the corporates themselves and say that there is a reputational risk around this,” according to Levin. “If we reach a tipping point [and disclosure] becomes standard, then the political change is more inclined to happen. But until we see something come out of D.C., we’ll need to push full throttle with the corporates.”