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November 02, 2010
Midterm Elections Challenge Priorities of Sustainable Investors and Shareowner Advocates
    by Robert Kropp

In the wake of the Supreme Court's Citizens United decision, spending by outside interest groups more than doubles, jeopardizing the fate of legislation addressing issues of importance to sustainable investors.

The role of sustainable investors in the political process is enshrined in the Principles for Responsible Investment (PRI), one of which calls for support of "regulatory or policy developments that enable implementation of the Principles."

Engagement by sustainable investors in the political process leading to policy developments was exemplified by the work of the
Social Investment Forum (SIF) in support of effective financial regulatory reform. Even before the Presidency of Barack Obama was inaugurated, SIF sent a letter to the President-elect, detailing its recommendations for financial reform. A second document, from September 2009, outlined the organization's priorities for reform.

When the Restoring American Financial Stability Act of 2010 finally passed, sustainable investors and shareowner activists applauded many of its provisions, finding acknowledgement in them for their years-long efforts to improve corporate governance and support small businesses.

Today, the midterm elections are upon us, following a campaign noteworthy for unprecedented political spending by outside interest groups, which, according to the Campaign Media Analysis Group, is twice that of the 2006 midterm elections. The primary driver of the increased spending—the vast majority of which has favored Republicans—is the US Supreme Court's decision in the Citizens United case earlier this year. The Court's ruling determined the rights of corporations to be equal to that of private individuals, despite their clearly articulated legal status as separate entities.

In response to the Citizens United decision, sustainable investors and other advocates for corporate governance stepped up their efforts to pressure corporations to disclose their political spending. In response to the ruling, for instance, Bruce Freed, President of the
Center for Political Accountability (CPA), told, "The decision makes corporate disclosure, systems of accountability, and board oversight even more important, to protect companies and shareholders."

Working with shareowner advocates, CPA has engaged with companies to improve disclosure and oversight of their political spending. Thus far, 76 companies have agreed to disclose and require board oversight of political spending with corporate funds, a number which includes more than half of the companies in the S&P 100.

Shareowner advocates themselves have proactively addressed the issue of corporate political spending as well, as resolutions submitted at 28 companies this year received an average of more than 30% of votes in favor. The highest vote recorded, at Coventry Healthcare, was 46%.

However, efforts to address topics of importance to sustainable investors have failed to make headway in this election year environment. The Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act, which would improve corporate disclosures to shareowners of political spending activities, failed to advance in the US Senate this year. A vote to invoke cloture failed when all 39 Republican Senators opposed it, leaving the measure one vote short of passage.

The Senate also declined to act on the Federal Employees Responsible Investment Act (FERIA), submitted in September by Democratic Congressman Jim Langevin of Rhode Island. The proposed legislation, which would add a sustainable investment option to the Thrift Savings Plan (TSP), the retirement savings and investment plan for federal employees, was denounced by a spokesman of the Federal Retirement Thrift Investment Board (FRTIB) as an effort to alter a "no politics" commitment by introducing "political or social considerations into TSP investment policy."

The major failing of the present Senate body, of course, is the fact that climate change legislation of any meaningful kind has not even reached the floor for a vote. As Paul Dickinson, CEO of the
Carbon Disclosure Project (CDP), told, "The politicians in the US are completely failing, and everybody understands that."

Should an increasingly conservative Republican Party gain control of one or both Congressional bodies, the likelihood of passage of such initiatives is likely to fade even further. As Peter Kinder, the founder of KLD Research and Analytics, told recently, "To make the political challenge concrete, keep in mind that every single Republican Senatorial candidate, with one minor exception, is a climate denier."


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