Shareholder group begins long-term engagement with major US corporations on “aggressive tax”

Engagement with household name companies is led by Switzerland’s Ethos Foundation

The Ethos Foundation, Swiss pension fund-backed body, is heading up a major new engagement on “aggressive” tax practices at major US corporations for Shareholders for Change (SfC), the new European institutional investor group.

The companies targeted are Alphabet (Google), Amazon, Apple, Facebook, McDonalds and Starbucks.

The justification for the engagement is that the six have relatively few physical assets but considerable intangible assets, such as intellectual property or brands, which means they are “particularly exposed to risks related to aggressive tax practices”. 

“We have engaged with 74 companies and two sovereign institutions so far, criticising them when we have detected serious issues and praising them if we have observed changes” – SfC’s Aurélie Baudhuin

They were selected “based on a media analysis through RepRisk linking them to significant and recurring negative news flow around the topic of taxes”.

The engagement has five priorities:

1. Responsibility for the tax policy rests with the board of directors

2. The principles of tax responsibility are incorporated in a dedicated, publicly available policy

3. The company pays its taxes where economic value is created

4. Intra-group transactions are carried out under market conditions

5. The company publishes the amount of taxes paid, country-by-country.

The SfC group is now just over two years old; it launched on December 6 2017 and its 11 members manage a total of €25bn in assets.

According to the new SfC Engagement Report for 2019, the engagement program has just been launched and “is expected to take several years to be completed”. It started last month with “kick off letters” sent to the chairs of the targeted companies.

The Ethos Foundation is a new member of SfC alongside the UK’s Friends Provident Foundation, Zurich-based asset manager Forma Futura and Swiss ethical bank ABS. 

“In all, thanks to SfC, we have engaged with 74 companies and two sovereign institutions so far, criticising them when we have detected serious issues and praising them if we have observed changes that, in our opinion, go in the right direction,” said SfC President Aurélie Baudhuin, head of SRI Research at SfC member Meeschaert, the France-based asset manager that was founded in 1935.

Active ownership

SfC defines ‘engagement’ as “active ownership through engagement as bond and shareholders”. 

There are two different styles of engagement, it says: 

  • Shareholder activism: engagement with companies that, normally, are already part of an investing universe selected according to ESG criteria
  • Critical shareholding: engagement with companies that are targeted by NGOs’ campaigns or are allegedly involved in serious environmental or social controversies and are normally not part of an investing universe. This approach is often implemented in cooperation with NGOs.