Asset managers quietly purging portfolios tax risk THE

Asset managers are increasingly concerned about companies with low tax bills, leading to exclusions and shareholder action amid growing risks.

Asset managers are increasingly concerned about companies with low tax bills, seeing them as a significant financial risk. Companies paying less than 15% of profits in taxes are being closely scrutinized, with some even being excluded from portfolios. This issue is expected to become more important as governments look to increase revenue following the pandemic.

Eszter Vitorino from Van Lanschot Kempen highlighted the importance of considering tax-related risks in investment decisions. Companies may not realize the risks they are exposed to, making it crucial for asset managers to assess this aspect. Shareholder actions targeting tax risks have doubled in recent years, with major companies like Exxon Mobil, Chevron, and ConocoPhillips facing resolutions.

Exxon Mobil, Chevron, and ConocoPhillips have defended their tax practices, emphasizing compliance with laws and regulations. Federated Hermes' EOS is engaging with companies across various sectors to address concerns about their tax histories. The OECD estimates that countries lose billions of dollars annually due to tax loopholes, prompting global efforts to establish a minimum corporate tax rate of 15%.

Asset managers like Mirova US are actively managing tax risks in their portfolios, anticipating potential impacts on company margins. The OECD framework aims to ensure fair profit distribution and introduce a global minimum tax rate. American companies operating in jurisdictions adopting these rules will be affected, underscoring the need for careful monitoring of tax-related news.

Robeco has started monitoring tax disputes, recognizing their direct impact on profitability. Companies like Google and Facebook are facing scrutiny for their tax practices, with asset managers like Mirova avoiding investments in these firms. Louise Dudley from Federated Hermes emphasized the importance of considering tax strategies alongside governance factors and valuation metrics when making investment decisions.