Jaime Boswell
Head of Accreditation, Fair Tax Foundation
Tax is an area of sustainability that’s often overlooked, but it’s vitally important to responsible governance, as well as for delivering social impact.
Luckily, businesses and their investors are increasingly recognising this, and putting some powerful practice into play.
Responsible tax supports sustainability
It’s perhaps understandable that tax hasn’t been top of the sustainability agenda, having seemingly sat solidly in the financial reporting bucket for so long. Yet, the non-financial reporting considerations are huge, such as the key contribution responsible tax makes to supporting the UN Sustainable Development Goals and the impact that reducing profit shifting can have on societies’ public coffers. In fact, companies not paying their fair share of taxes may well be undermining other social and environmental goals they have by doing so.
In addition, responsible corporate tax conduct is so often a sign of good governance in other areas. On the flip side, the Principles for Responsible Investment have noted, ‘aggressive tax planning creates reputational, governance and earning related risks.’
Responsible corporate tax
conduct is so often a sign of
good governance in other areas.
Transparent, fair and ethical taxation
So, what does responsible corporate tax conduct look like? Well, it’s often a combination of having and sticking to a highly responsible public tax policy that has robust governance in place and commits the business to following not just the letter of the law, but the spirit of the law too, and shunning the artificial use of tax havens.
Moreover, it meaningfully explains tax positions and discloses cash taxes paid, producing public and transparent financial statements and being transparent on beneficial owners and other areas of management. For multinational companies, reporting on profits made and taxes paid in each country the company operates in is also key.
Encouragingly, businesses are increasingly demonstrating this level of responsible tax conduct, with some 270 organisations in the UK and Europe achieving the gold standard in this area: the Fair Tax Mark.
Considering tax as key ESG factor
Sustainable investors too are turning their attention to tax. Asset managers are filing shareholder resolutions on the issue and asking questions about it in their engagement and stewardship activities. Asset owners such as pension funds are prompting companies to apply for the Fair Tax Mark or consider tax in their remuneration policies.
The growing importance of tax in sustainability is set to continue, and businesses can be confident that those looking to incorporate responsible tax practices into their ESG and sustainability strategies are on the right track.
