The business case for responsible investors to explore the long-term implications of tax-related risks is multifaceted.
Before engaging with companies on their tax practices, investors need to develop a good understanding of the main strategies that can be used by companies to reduce tax payments.
A good indicator of potential earnings risk is the difference between the effective tax rate on a company’s income statement and the weighted average of statutory rates based on the firm’s geographic sales mix8. Although the mismatch may be explained by factors unrelated to tax minimisation, such as tax credits, ...
The list of questions proposed in this section can be used to research the company’s tax profile based on current financial or sustainability reporting.
Investors should be asking companies for better disclosure on their tax practices, to further understand if and how companies and their boards identify and respond to taxrelated risks, and government and other stakeholders’ expectations.
Executive pay remains at the forefront of corporate governance discussions for the investment community.
The company dialogue and research highlights that the integration of ESG issues into executive pay is in its infancy and there is considerable scope for investor engagement to improve practice and disclosure across all sectors.
The research analysis below summarises the practices of 84 extractive and utility companies included in major stock indices in North America, Europe, and Australia.
The investor-company dialogue and research uncovered key additional insights to the recommendations of the 2012 guidance:
Director nominations and elections represent some of the most fundamental ownership rights for shareholders – namely the right to appoint and remove members of a company board to represent their interests in promoting long-term value creation.
After consulting with signatories and acknowledging the critical importance of the nominations process to longterm investor returns, the PRI coordinated a collaborative engagement on the issue.
The 13 US companies investors selected for engagement in 2014 ranked in the lower 50% of all S&P100 company performance on nominations processes when assessed against indicators included in the commissioned research.
As with the US, investors chose to engage with 11 French companies ranked in the lower 50% of all CAC40 company performance based on their nominations process.
As a result of the analysis presented in this report, investors are encouraged to continue discussions with their investee companies on director nominations.
Given the increasing importance of the issue, a group of PRI investors participated in a coordinated engagement on antibribery and corruption between 2013 and 2015.
Setting clear targets and expectations is very important, as well as recognising when (and when not) to push companies regarding sensitive areas.
Investors found that the results generated from benchmarking companies’ disclosure, as well as working in collaboration with other investors, was helpful in securing meetings and initiative the dialogue with selected companies.