The ESG movement: tax and corporate purpose

11 September 2019

What is the purpose of a company?

Once upon a time, that was an easy question: companies are supposed to maximise shareholder value, through generating profits and increasing their share price.

In recent years, the ground has been shifting with a greater focus from investors and companies on environmental, social and corporate governance issues (known as ESG).

A recent US Business Roundtable statement picks up on similar themes, endorsing "stakeholder capitalism" in place of the traditional pursuit of shareholder value.

The Business Roundtable statement, signed by 181 US business leaders, committed companies to:

  • delivering value to customers;
  • investing in employees;
  • dealing fairly and ethically with suppliers;
  • supporting their communities; and
  • generating long-term value for shareholders.

I have written recently about how tax fits into this new understanding of how companies interact with their stakeholders, for example in this Summer’s edition of Ethical Boardroom magazine.

For tax matters, just as for environmental and social issues, directors are now expected to give serious consideration to the purpose of their company, and to reflect on how that informs behaviour in relation to tax.

The Business Roundtable statement is the latest reminder that, when it comes to tax, maximising shareholder value is no longer the only consideration.

Perhaps companies will have to report more on ESG (environment, social and governance) factors, legal experts suggest, as evidence that companies are fulfilling this new purpose.