Ever try and pay off a referee at a sporting event or maybe pay a friend to write a term paper for you? I hope not. By the same logic, should corporations be able to use investor money to try and sway politics? Rightfully, most involved in the sustainable investing world don’t think it proper. (
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One aspect of Environmental, Social and Governance (ESG) investing has to do with strong corporate governance. Issues under this Governance section include corporate transparency, executive compensation, general corporate decision making, and political spending. Corporate political spending entails donations to political parties, candidates and Political Action Committees (PACs) and is often frowned upon as investors have no idea where this money is being directed.
So how much money is being spent to sway our public officials? In the midst of the 2012 election, almost $5 billion was spent by groups hoping to influence our congressional and presidential races. Most of this spending goes towards those non-stop commercials attacking the opposite party.
Many of the companies we invest in today are quietly taking money out of the petty cash drawer to change politics. These are the
corporate contributors or “fatcats” for 2012:
5. Dreamworks Animation SKG Inc. (DWA) -
4. AT&T (T) -
3. Comcast Corporation (CMCSA) -
2. Goldman Sachs (GS) -
1. Las Vegas Sands Corp (LVS) -
Due to the funnelling of these dollars into these super PACs, trying to find where this money is being directed is the difficult part. For example, the main Obama super PAC, Priorities USA Action was given $1 million from Jeffrey Katzenberg, CEO of Dreamworks. On the flip side, Las Vegas Sands Corp poured money into supporting the Republican Party and Mitt Romney's run for president.
For an investor, is this good or bad?
According to a Rice University/Long Island University
companies that spend heavily on campaigns, lobbying and other political contributions aren’t necessarily helping their own bottom line. This team looked at stock value of 943 companies in the S&P 1500 over 11 years and tracked approximately $5 billion in political spending from 1998 to 2008. Their findings showed that on average, a company that spent more on political interests, performed worse financially.
Below is the 1 year return of the top 5 political-contributing companies along with their CEO compensation.
List Average 1-Year Return: 16%.
Written by Kapitall's ESG (Environmental, Social, Governance) Expert, Dale Wannen