CHICAGO – Amid growing concern about climate change and social unrest, institutional investors increasingly apply environmental, social and governance criteria in their portfolio decisions. However, while it is important for investors to consider environmental, social and governance (ESG) factors, the new focus threatens to overshadow a much more relevant question: the role that corporations play in the democratic process.

The Universal Declaration of Human Rights (Article 21, Section 3) stipulates that “The will of the people is the basis of the authority of public power. This will will be expressed in regular and genuine elections ”. Democracy, therefore, is a human right, which implies that the first social responsibility of companies – be it a sole proprietorship or a multimillion dollar company – is to refrain from undermining democracy, whether in the country. or abroad.

Many will consider this point obvious or irrelevant. What do corporations have to do with democracy? Indeed, many corporations play a prominent role in distorting the democratic process, the proper functioning of which is to transform the popular will into legislative action. Let me illustrate this point with examples from the United States, which used to be considered the most advanced democracy in the world.

In 2019, the Republican-controlled Ohio state legislature passed House Bill 6, which provided $ 1 billion in subsidies to bail out FirstEnergy Solutions, a nuclear plant subsidiary of a power company.

The bill was not an expression of the will of the Ohio people. In contrast, a dark money group, Generation Now, has pleaded guilty to running a massive bribery scheme to secure approval of the ransom. Generation Now solved the campaigns of 21 different candidates at the state level, including House Speaker Larry Householder, who also received more than $ 400,000 in personal benefits.

And as if that weren’t enough, when Ohioans began collecting signatures for a referendum aimed at abolishing the HB6 bill, Generation Now launched an ad campaign saying that the Chinese would take over the state’s power grid if imposed. rejection. A local media outlet also determined that the group had “hired ‘blockers’ who followed, fenced off, harassed and (in a couple of cases) physically beat those who collected signatures for the petition.” It was later revealed that Generation Now was funded with $ 56.6 million from FirstEnergy Solutions, but this scandal would never have come to light had it not been for an FBI investigation.

As this episode seems to belong more to the Guatemala of the 1950s than to the United States of the 21st century, can we dismiss it as an isolated case, limited to a bad company, a single state, or just the Republican Party? Unfortunately not.

The commonplace of American politics is that “what happens in Ohio, happens in the country.” In nearby Illinois, Exelon Corporation agreed to pay a $ 200 million fine for a long-standing bribery scheme in which the company gave jobs and contracts to associates of Illinois House Speaker Michael Madigan, leader of the Democratic Party. of the state.

Again, the only unusual aspect of this story is that the perpetrators were caught. A recent paper from the Quarterly Journal of Economics offers systematic evidence of the many ways that corporate money is typically funneled through nonprofits to influence political outcomes behind the scenes. The actions documented in the study are legal, but that does not make them socially responsible.

Corporate influence in the American political process is not only straining our public finances and devastating our environment; it is also fundamentally undermining our democracy. Democracy deserves to be preserved if it fulfills the function of transforming voters’ preferences into policies. But if it does not meet this premise, why keep it? After all, democracy is neither efficient nor cheap to maintain. If voters do not trust their elected representatives to represent them, they will support extremists willing to bring down the corrupt system.

Given all that is at stake, not interfering with the democratic process should be the main social responsibility of any company. ESG considerations are important, but if a company doesn’t apply criterion D (democracy), it doesn’t matter how well it may be doing on ESG metrics. As the FirstEnergy and Exelon scandals demonstrate, the risks of foul play can easily outweigh the benefits of a supposed ESG alignment. On the contrary, if a company meets its requirement D, but not the ESG criteria, political governance can still be counted on to help repair those problems that still persist. That is why D must always come before ESG.

The first principle of responsible investment, then, is to ensure that corporations are not violating or rewriting the rules of the democratic game, either at home or abroad. This is perfectly possible, and it starts with requiring full transparency about where corporate money is invested. The 2010 Citizen United decision of the United States Supreme Court may have cleared the way for unconstrained corporate money in policy, but it does not protect the right of corporations to make such expenses without informing their shareholders.

Today a public initiative to impose this kind of transparency is gaining momentum. On average, support for shareholder proposals requiring political spending disclosure has risen from 36.4% in 2019 to 48.1% in 2021. If the big three institutional investors – BlackRock, Vanguard and State Street – support this principle, it could become in the standard for all major companies in the United States. Would full transparency prevent corporations from distorting democracy? It would be a breakthrough, because it would expose its corruption (legal or not) not only to its shareholders, but also to its customers, employees, and regulators. The time to act is now. Tomorrow may be too late.

* The author is a professor of Finance at the University of Chicago, he is a co-host of the Capitalisn’t podcast.

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