Ethical investors step up focus on tax avoidance

By Tom Bergin and Sinead Cruise, Reuters

LONDON–Growing anger at aggressive tax avoidance by big business has prompted ethical investors to consider shunning shares in companies that don’t 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 United States. All the companies criticized 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 such avoidance is 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 companies over tax issues, according to more than a dozen industry professionals contacted by Reuters. That may be about to change. FTSE Group, which compiles the share indexes that fund managers in the UK, United States 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. FTSE did not say when it would reach its decision. The FTSE4Good indexes are one of the benchmarks most commonly used by ethical funds to build their portfolios. European funds invested in socially responsible investments totaled 7 trillion euros (US$9.30 trillion) at the end of 2011, according to European Sustainable Investment Forum, an ethical investment industry association.