Tom Bergin and Sinead Cruise London
Growing anger at aggressive tax avoidance by big business has prompted ethical investors to consider shunning shares in companies that do not pay their fair share of tax.
As governments struggle to balance massive budget deficits caused by the financial crisis, reports that big companies like Apple, Google and Vodafone pay minimal taxes in some big markets have sparked public protests in Europe and the US.
All the companies criticised say they follow the law, and some argue they owe it to investors to pay as little tax as legally possible. But politicians on both sides of the Atlantic have argued that such avoidance was immoral and hauled executives into public hearings to explain their tax affairs.
Tax authorities in France, Germany and Italy have even launched raids on some high-profile companies’ offices.
Many investors with a “socially responsible” mandate say they have long taken account of companies’ tax practices when deciding where to invest, but few if any funds have made a point of screening out firms over tax issues, according to more than a dozen industry professionals.
That may be about to change.
FTSE Group, which compiles the share indices that fund managers in the UK, the US and Asia use to build investment portfolios, said it was looking into excluding companies with what it called overly aggressive tax reduction policies from its ethical index group, FTSE4Good.
“Tax is one of the areas which the independent FTSE4Good policy committee are considering, among other criteria priorities,” a spokeswoman said yesterday.
FTSE did not say when it would reach its decision.
The FTSE4Good indices are one of the benchmarks most commonly used by ethical funds to build their portfolios.
European funds invested in socially responsible investments totalled e7 trillion (R83 trillion) at the end of 2011, according to the European Sustainable Investment Forum, an ethical investment industry association.
Eleven percent of the $33.3 trillion (about R293 trillion) in assets under professional management in the US is invested in funds that screen for environmental and ethical factors, according to a 2012 report from the US Forum for Sustainable and Responsible Investment.
Jacky Prudhomme and Helena Vines-Fiesta, co-heads of environmental, social and governance research at BNP Paribas Investment Partners, said they were working on a system for screening out firms with inappropriate tax practices.
The Paris-based asset manager had e513 billion in assets under management as of March 2012. – Reuters