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Corporations and tax avoidance: the time is right for investors to push for change

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While public awareness towards the issue of tax havens and their potential negative implications has significantly increased over the past years, it still seems the political will to close gaps and loopholes in international tax law is rather marginal.

That is to say, while civil society organisations, NGOs and a range of practitioners have made serious efforts to highlight the costs and risks inherent in the use of tax havens and – to use another term – “secrecy jurisdictions”, regulations and proposals of government officials and supranational organisations have remained quite vague in terms of their concrete impact and practicability, or have been watered down in their final implementation.

However, a number of political actors have recently voiced their ambition to tackle the multiple forms of tax avoidance and tax evasion, also being aware of the connotations of neglecting the relevance of this topic in face of the global financial crisis. Recently, the distribution of tax data to international journalists by an anonymous source and the subsequent publication of this data, have again raised awareness of the topic.

In this context, estimates by Tax Justice Network of the global volume of assets held in tax havens range around the double-digit trillion euro range.

To quote another source, according to estimates by Global Financial Integrity from 2010, developing countries have lost an average $98-106 billion in the period between 2002 and 2006 due to manipulation of transfer prices in internal company trade.

To turn a blind eye to what these numbers imply with regards to public opinion, and in the light of tax money being spent to rescue global financial systems and corresponding austerity measures to finance these rescue schemes, is politically dangerous. Nonetheless, tax loss is only one negative dimension of this complex, global and well-established economic practice. Others include the risk of financial market and economic stability, facilitation of criminal activities, and financial crime.

Being aware of the above and having embarked on intense discussions with institutional investors and experts, Imug – the German research and sales partner of EIRIS – introduced a criterion on secrecy jurisdictions and tax avoidance in its ‘sustainability rating of bank bonds’ from 2011.

The research encompasses a universe of 127 international issuers of bank bonds and covers environmental, social and governance (ESG) indicators relevant to financial institutions and their business activities alongside sophisticated screenings of controversial issues.

After two years of testing this specific criterion, it can be stated that little has changed in how financial institutions deal with their responsibility of addressing the issue of secrecy jurisdictions. Fifty-seven per cent of the researched issuers had a physical or financial presence in tax havens or have been charged or prosecuted for tax avoidance/evasion matters over the past three years, while only 23% of the universe could prove the existence of a relevant policy or management system addressing the issue.

The methodology applied by Imug in its 2011 and 2012 research will be further refined in 2013 to incorporate more detailed analysis of qualitative contents of the respective policies and management systems in place, so it can be expected that even less issuers will be able to fulfil the required indicators in future ratings.

So far, Imug has only tested involvement in controversial tax matters and the existence of relevant policies and management systems, whereas in 2013 a number of indicators in line with expertise and research provided by internationally regarded governmental and non-governmental organisations will be applied.

As the current state of play among financial institutions in addressing the issue is rather weak, the findings might turn out to highlight the need for responsible investors to push for change.

However, some banks have introduced the first practical steps in addressing this issue, even though none of them can be seen as providing a best practice example. Moreover, the governments in France and UK have already chosen to apply stricter reporting rules for financial institutions, thereby providing better practice than some of their peers. There is still plenty of room for improvement.

A positive example that needs not to be left unmentioned here is the Foreign Account Tax Compliance Act (FATCA) in the US from 2010, which reflects an important development in efforts to improve tax compliance involving foreign financial assets and offshore accounts.

Here, it is not only the specific design of the act that is worthy of mention, but also the political relevance that economic reforms and regulations implemented in the US may have for national governments across the globe. In line with this, it can be stated that in public and political discourse, as well as among responsible investors in Germany, expectations regarding financial institutions’ transparency and responsibility in their dealings with secrecy jurisdictions and tax avoidance have intensified.

An active analysis of a financial institution’s own role in business activities in or via secrecy jurisdictions is therefore crucial for each financial institution. Otherwise institutions not only undermine national and international efforts to tackle social, environmental and economic challenges but also run the risk of being exposed to significant reputational, financial and legal damage.

Jan Köpper is a fixed income ESG analyst at Imug, EIRIS’ global platform partner in Germany. This article originally appeared on EIRIS’ blog.

Further reading:

Charities used in offshore tax avoidance scam

Avaaz petition asks bankers to pay their fair share of tax

Aggressive tax avoidance keeps on hitting the headlines

MPs deem global companies’ tax avoidance as ‘an insult to British businesses’

The joy of tax

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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