Welcome to the latest edition of Responsible Business Update – our newsletter covering sustainable business and ESG (Environmental, Social, Governance) legal and regulatory issues.
In this edition, we examine global moves towards a perceived "fairer" tax system for multinational companies and we look at how institutional investors are playing an important role in driving the responsible business agenda by allocating capital to businesses based on their ESG performance.
Some of the change is coming from investors themselves – below we look specifically at the growing impact investing sector and the focus on ESG and wellbeing in the residential development sector. In other areas, the change is coming from regulators – we look at the new requirements on pension scheme trustees to take ESG factors into account when making investment decisions. The Financial Reporting Council has also today unveiled a revised version of its Stewardship Code, with an enhanced focus on responsible business and ESG factors.
We would love to discuss your business’s approach to meeting these challenges, and how we can help you to fit your responsible business practices in with the legal and regulatory landscape to ensure that your programmes are as efficient and effective as possible.
Please do get in touch with your usual Osborne Clarke contact or any of us listed below.
Impact investing is on the rise, capturing headlines and the imaginations of investors and investment funds alike. The Global Impact Investing Network estimates that the value of impact assets managed globally is $502bn.
Earlier this month, Osborne Clarke hosted a thought-provoking debate on "Impact Investing – Fundraising for Good or Good for Fundraising?" Keynote speaker Maggie Loo (Bridges Fund Management Limited) and our expert panellists including Hugo Llewelyn (Newcore Capital Management LLP), Jane Bowes (Threadmark), Cameron McLain (Giant Ventures) and Karen Ng (Big Society Capital) all shared their thoughts on this hot topic.
But what exactly is impact investing, why is it on the rise and what more needs to be done to ensure its success?
Green and pleasant spaces
Wellbeing and the notion of "well buildings" are an emerging influence in the residential real estate sector, as property developers and investors bring an approach already well-established in commercial property to their business models for the provision of homes.
Conrad Davies, head of Real Estate and Infrastructure at Osborne Clarke, explains: "Wellbeing and social impact are buzz words in the industry at the moment. They raise many questions for an industry that has long focussed on the property they build rather than the people they house.
"The social and environmental impact of enterprise is high on the agenda at the moment. The real estate sector isn't immune to this attention and there is increased focus on the impact our sector has on the communities in which we operate."
Pension scheme investments
New requirements for the trustees of occupational pension schemes to give greater consideration to ESG as an investment risk, and to take a more active role in the oversight of investments, are likely to result in increased engagement. The change is likely to affect all of the investments made by pension schemes, ranging from shares in listed companies through to private equity and real estate.
Companies that have a final salary pension scheme are also likely to find that climate-related risk is taken into account when assessing the strength of an employer's 'covenant'.
Taxation of multinational enterprises
The debate around companies paying a ‘fair amount of tax’ has mainly focussed on tax transparency (the disclosure of a company's tax affairs and tax policy) and the use of tax avoidance structures (lawful arrangements which minimise the overall tax payable by a business).
Globalisation and the growth of the digital economy has led to a particular focus on the taxation of multinational enterprises in the digital sector. The largest of these types of business often have complex business structures, where revenue accrues to a low-tax jurisdictions from customers based outside that jurisdiction.
Many jurisdictions argue that a business's “user-generated value” should be taxed in the countries where it has a significant economic presence, but not everyone agrees. Reaching international consensus on these issues is becoming more urgent as many jurisdictions are bowing to domestic political pressure and introducing interim, unilateral solutions.
In a significant step forward towards finding a consensus, earlier this month the OECD published a proposal for multinational enterprises to pay tax where they have significant consumer-facing activities. Importantly, the OECD's proposals have been given the seal of approval by G20 finance ministers.