The New York State Common Retirement Fund has ratcheted up pressure on companies in its listed equity portfolio to disclose their political spending in what it calls a “priority issue,” up there with climate, DEI and capital management.
“It is about governance,” says Liz Gordon, executive director of corporate governance at the $267.8 billion pension fund, speaking on the anniversary of last year’s siege on US Capitol Hill which prompted unprecedented scrutiny of corporate America’s response to the turmoil.
“As shareholders, this is our money and we are concerned if it is being spent in a way that is consistent with companies stated priorities and if there is a thoughtful process in place.”
Gordon argues it is in companies’ interest to participate in the political process and their right to do so, but transparency and governance around the process is also essential.
“We just want to make sure they are doing it in line with long-term shareholder value. The risk is real, no matter who you are giving to. It is about governance and the potential for misalignment.”
She dates NYS Common’s engagement on the issue from 2010 when corporate funding began to play an outsized role in campaign financing following a Supreme Court decision in Citizens United v FEC which removed any limits that corporations, or other groups, could spend on political elections. Since then, the pension fund has worked closely with the Centre for Political Accountability a non-profit organisation created in 2003 to bring transparency and accountability to corporate political spending.
Using its index on corporate disclosure, the pension fund targets the lowest scoring companies posing the greatest risk because of the absence of disclosure and oversight. The fund has filed 169 shareholder proposals since 2010 and successfully persuaded 49 companies to adopt and improve their disclosure.
Gordon is convinced things are starting to change – although laggards remain, she notes that companies are responding. Like clothing maker Hanesbrands, one of the companies targeted in the fund’s latest batch of shareholder proposals, and where executives have already voiced their commitment to upping governance and disclosure around political spending, contributions to trade associations and other so-called dark money.
Moreover, she believes the debate has moved on as companies increasingly question if political contributions make sense for their corporations.
“Is this something they need to be doing? This is something companies increasingly need to explore themselves,” she says.
Although conversations depend on the culture of the company and its evolution, there is also clear best practice to follow and most are doing a good job around disclosure in “cordial and productive” conversations.
Still, she concludes efforts are confined to the fund’s public equity exposure. As an LP in private equity funds, it is much more difficult to engage directly with companies leaving NYS Common dependent on effective and robust engagement with its managers on the issue.
“They know what we prioritise and what we care about,” she concludes.
Many other asset allocators are also looking at political spending as a risk. Over the last three years, nine of the world’s largest asset allocators voted in favour of corporate resolutions for increased transparency and accountability on political spending, including APG, BCI, CalPERS, CalSTRS, CPPIB, NYC Retirement System, NBIM, OTTP and PGGM.
Scott Kalb, director of the Responsible Asset Allocator Initiative (RAAI) at think tank New America, says political spending is a risk that asset owners need to take seriously. He said screening out political risk required better asset owner education and investors using their proxy voting power to improve corporate disclosure on political spending.
“Asset owners should adopt policies on political spending as part of an ESG framework and put their asset managers on watch to the risk, notifying them that they won’t tolerate investment in companies spreading disinformation or engaged in violent activity.”
Moreover, he said these groups threaten the very system on which institutional investors rely like the rule of law.
“If you are a good steward of capital, investing in companies that have poor transparency regarding political funding contravenes good governance.”