Aggressive tax practices are an investment risk
Companies that engage in aggressive tax practices, either for themselves or for their clients, reduce tax revenues available to governments for delivering public services and infrastructure. Companies that engage in these practices also face potential earnings risk arising from new regulation alongside reputational risk, which can negatively impact share prices and hurt investors’ portfolios.
This is a particular concern for companies that rely on consumer trust and confidence, such as financial institutions. Through our analysis we have, for a number of companies in this sector, deemed the risks associated with poor tax practices to be too high to be considered for investment in the Sustainable Future fund range.
We assess our holdings for tax-related risks, which includes whether companies are domiciled or have subsidiaries in tax havens. We continue to engage with companies in our portfolios to better understand company-specific tax-related risks, how these risks are being addressed and how prepared companies are for upcoming changes in tax regulation.
We have worked with 10 other global investors and the Principles for Responsible Investment (PRI) to develop a guidance document for investors on how to engage with investee companies on corporate tax responsibility.
Harriet Parker is an investment manager and Chris Foster is an investment analyst on the Alliance Trust Investments Sustainable Future fund team.