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 criticised 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.
Raids of companies
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. 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 totalled €7 trillion ($9.30 trillion) at the end of 2011, according to European Sustainable Investment Forum, an ethical investment industry association.
Eleven percent of the $33.3 trillion in assets under professional management in the United States is invested in funds that screen for environmental and ethical factors, according to a 2012 report from the US Forum for Sustainable and Responsible Investment.
Jacky Prudhomme and Helena Vines-Fiesta, co-heads of Environmental, Social & Governance research at BNP Paribas Investment Partners, said they were working on a system for screening out companies with inappropriate tax practices. The Paris-based asset manager had €513 billion in assets under management as of March 2012.
"We are not at this stage in a position to assess tax strategies in a systematic manner due to lack of underlying data. However, we are starting to examine how we can do this in some sectors," Prudhomme said, but did not say which sectors.