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Impact investing tackles a new challenge: Dark money in politics

It’s estimated that $750 million of “dark money” circulated during the 2020 election cycle. Dark money is the ominous name for funds donated to political candidates and parties without disclosure of the source of the cash—a practice that’s become legal and legitimate in recent cycles because of various court decisions and regulatory loopholes.

As dark money continues to become of more concern in a divided political climate—especially as reports emerged that dark money may have contributed to fueling the Capitol riot—an asset management firm is recommending that investors show their concern and help enact change by divesting from companies that aren’t being transparent about their political donations. Relying on a scoring system, the firm has compiled divestment and investment lists of S&P 500 companies, placing businesses such as Netflix and Tyson Foods in the divestment list and Accenture and Honeywell in the investment. The tool “helps investors purge their portfolios of companies that hide their political spending activities or policies,” reads the press release, “and invest in those leading in transparency around their political donations.”

The firm, OpenInvest, takes a slightly more tech-forward approach to environmental, social, and governance (ESG) investment generally. The company argues that simply picking a “green fund” to reflect your climate values, for instance, is not always effective, in that you may then be forced to invest in companies that don’t align with your other values. Instead, it’s developed a mix-and-match system where you can tailor your portfolio by adding and subtracting stocks that mirror your personal causes—whether supporting veteran’s issues or opposing the prison-industrial complex—all via your smartphone.

Political spending isn’t usually at the top of investors’ minds when it comes to their ESG priorities, Levin says; it’s not a “cross-cutting” topic like the environment. But the focus on culling corporate political interest is the most popular it’s been since they launched the cause in 2018. The firm argues that investing in companies that are transparent, and divesting from those that aren’t, are ways to hold corporations accountable for their covert political spending.

Dark-money spending has risen dramatically; in 2004, it only accounted for an estimated $5.9 million. Most of this money is funneled through nonprofit groups, which are exempted from disclosing their political spending, and even from Federal Election Commission limits on spending, which are stringent if businesses donate directly to a candidate or party. These groups include “social welfare” groups, such as Planned Parenthood but also the National Rifle Association; labor groups and unions, such as the AFL-CIO; and business leagues such as the U.S. Chamber of Commerce. Some of those groups can then channel more money, covertly, to super PACs. “They have opened up massive loopholes that you can drive an aircraft carrier through,” Levin says.

OpenInvest uses data from the Center for Political Accountability (CPA), which produces index scores for companies based on various indicators—most critically, whether a company has robust policies about its political spending, whether there’s solid oversight over those policies, and whether there’s enough transparency in reporting this spending to the public. The bar is currently quite low: “We’re not even at a place in society where we’re expecting that they’re reporting all their specific donations, dollar for dollar,” Levin says. OpenInvest then integrates these scores into its technology.

OpenInvest has placed 127 companies in its “divestment list”: businesses including Netflix, Activision Blizzard, E-Trade, Fidelity, and Berkshire Hathaway, all of which failed to disclose their spending policies or practices, according to the CPA’s methodology. This is not to say these companies are engaging in political spending, but Levin says the lack of transparency in reporting is the biggest red flag that earns placement on that list. OpenInvest claims Delta, Kroger, and Harley-Davidson also failed to disclose any of their political spending for 2020. Conversely, its investment list—made up of those scoring perfectly on transparency—includes Accenture, Honeywell, Goldman Sachs, and HP, with companies such as General Electric, AT&T, and Ralph Lauren not far behind. With this knowledge, people can put their money into the companies aligning with their own personal values on this topic.

There are signs of businesses doing better. Among the most improved companies were Hilton, Expedia, and DuPont, the last of which went from the lowest transparency tier in 2019 to a perfect score in 2020. The CPA says 150 large companies, including half the companies on the S&P 100, now agree to disclose information. “We’re kind of reaching a tipping point, with more and more companies finally coming out and being transparent,” Levin says. “Now, we’ve got to mop up the rest here.” Levin recommends that investors show up to vote on corporate policies during the upcoming shareholder proxy season (and they can do so on their phone with OpenInvest). He also expects to see more mandatory transparency and the amplification of shareholder voices under Biden’s administration, in contrast to Trump’s.

“For me, the biggest enemy is apathy,” Levin says, adding that the entire goal is to encourage investors to use their shareholder power to hold companies accountable, whatever the cause. In the political sphere especially, corporations have outsize financial power—they can truly shape governments—placing a greater onus on everyday shareholders. “We literally own them,” he says. “The CEO works for you.”

Source: Impact investing tackles a new challenge: Dark money in politics

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