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Dutch pension giant ABP sets responsible tax expectations for portfolio companies

ABP joins growing governance trend encouraged by the PRI and some institutional investors

Stichting Pensioenfonds ABP, the €458bn Dutch pension fund for government and education employees, has created 10 principles on tax responsibility, raising expectations for portfolio companies in a governance area of growing importance.

The Principles for Responsible Investment (PRI) has been promoting the topic among signatories recently, taking the view that responsible tax is a material ESG issue. As the Covid-19 pandemic forces governments to inject taxpayer money into entire sectors of the economy, tax scrutiny of portfolio companies is becoming a stronger focus for responsible investors.

ABP’s principles state that responsible tax behaviour fits within the broader scope of the fund’s investment beliefs and that it is committed to responsible tax planning, meaning that the letter and spirit of tax laws should be taken into account in line with the OECD's principles.

The pension fund said the principles have been penned by the board and it will be reporting on how it implements them. The principles also mention that ABP uses private companies – domestically and internationally – to manage its own investments, although that is done for commercial reasons or to limit liability risks and administrative burdens.

By 2025, ABP wants to have introduced proprietary data and processes to engage companies on responsible tax; disclosing to stakeholders how much taxes are indirectly charged to ABP and how much it pays directly and indirectly in various countries; applying the principles to all investments; and cooperating internationally with institutional investors.

Among ABP’s peers active in this area are Norges Bank Investment Management, which  published an Expectation Document on Tax and Transparency back in April 2017. The manager of Norway’s $1trn Government Pension Fund Global expects companies to pay tax where their value creation takes place and this should be disclosed by using country-by-country reporting.

Last year, Epworth, a UK investment house wholly-owned by the Central Finance Board of the Methodist Church, became the first asset manager to join the Fair Tax Mark, an initiative that certifies companies demonstrating responsible tax behaviour. 

In addition, the network of values-based investors representing €25bn in assets, Shareholders for Change (SfC), has engaged companies on tax avoidance issues since it launched in December 2017. SfC has an ongoing engagement with European telecom companies, called Bad Connection, which focuses on ‘conduit countries’ or jurisdictions that route investments for tax reasons.

For more on this topic, see RI’s article: Room for one more? Why Tax Justice should be the eighteenth SDG