COVID-19: Govts. & financiers increasingly urge companies to use (emergency) funds to support stakeholders not shareholders

As the scale and scope of the COVID-19 pandemic, and the impacts on business and workers and communities, continue to grow, so do calls for a ‘new social contract’ (see our blog here). Increasingly, companies are urged by governments and investors to focus not only on shareholders but to prioritise key stakeholders, particularly employees, in their responses to the pandemic. The EU Parliament, in a resolution adopted on 17 April 2020, for instance, insists public financial support should be conditional on companies using funds "to benefit employees [and] refraining from… tax evasion [and] paying out dividends".

In some countries, this is already a conditionality for business aid. The Government and Parliament in Denmark for instance stated that companies which pay out dividends, buy back own shares or are registered in tax havens would be excluded from business aid. They also said companies receiving aid should follow the UNGPs.

CSOs have also called for mandatory human rights and environmental due diligence to be attached as a condition for businesses rescued with public money.

This story will be updated with articles on action taken by governments, investors and financiers in this regard.

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Article
29 May 2020

Principles for Responsible Investment publishes guidance investor questions on COVID-19 for AGM season 2020

Author: Principles for Responsible Investment

AGM Season 2020: Investor questions on COVID-19, 21 May 2020

This guidance (co-developed by the [Principles for Responsible Investment] (PRI), Business & Human Rights Resource Centre, California State Teachers’ Retirement System and APG) provides investors with ESG-related questions to ask investee companies’ – at annual general meetings (AGMs) and in follow-up engagements – about their responses to COVID-19.

The guidance supports institutional investors to further their stewardship activities and to build a collective response to the crisis. The global investor community can use it to set expectations for portfolio companies and work towards a sustainable economy…

Key themes

  1. Business continuity - for employers, suppliers and communities
  2. Employee health and wellbeing - to ensure an engaged workforce
  3. Alignment with long-term value creation

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Article
4 May 2020

Calls grow for beneficiaries of COVID-19 bailout to reduce carbon emissions, halt dividend payments & share buybacks and not use tax havens

Author: Simon van Dorpe, Elisa Braun & Thibault Larger, Politico

"If you want a bailout in Europe, don’t use tax havens", 23 April 2020

A growing number of European governments are insisting there won't be any emergency cash during the coronavirus pandemic for businesses registered in tax havens like Panama and the Cayman Islands...

[T]ax justice advocates say that these national measures could help boost transparency and, ultimately, a level playing field in global corporate taxation. “This is an important symbolic first step,” said Quentin Parrinello, who works on tax policy for the NGO Oxfam, “but much will depend on the modalities of the different proposals.” ...

[C]alls are growing to spend the unprecedented amounts of taxpayers’ money in bailouts ethically. In 2020, that means the beneficiaries should drastically reduce carbon emissions, not engage in dividend payments or share buybacks for a while and not dodge taxes...

For Oxfam’s EU tax policy adviser Chiara Putaturo, a better condition on the corporate bailout would be “to require public country-by-country reporting, so it would be possible to see where the money goes and whether companies are engaged in tax avoidance practices.”

Currently, only tax authorities know the full breakdown of where multinationals pay their taxes...

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Article
24 April 2020

OECD briefing on building responsible business conduct approach into govt. & business responses to COVID-19

Author: OECD Centre for Responsible Business Conduct

'COVID-19 and Responsible Business Conduct', 16 April 2020

...Taking an “RBC [responsible business conduct] approach”, based on the OECD Guidelines for Multinational Enterprises, and using risk-based due diligence... as described in the OECD Due Diligence Guidance for Responsible Business Conduct, would bring short and long-term benefits. In particular, it would enhance companies’ capacity to build and increase resilience to better deal with current and future supply chain disruptions, and enhance their ability to access private and public finance. An RBC approach in the design and implementation of government measures to support the global economic recovery would also help ensure a fairer and more inclusive distribution of benefits...

Company RBC approaches could include the following measures:

- Social dialogue and stakeholder engagement...

Environmental, health and safety management...

- Supply chain management that addresses vulnerabilities in the supply chain...

Government RBC approaches could entail the following strategies:

- Conditioning emergency or relief funds to compliance with RBC standards...;

- Using emergency and relief programmes to support companies in creating long-term economic, social and environmental value;

- Using RBC standards as a framework for identifying the environmental, social and governance risks and vulnerabilities in the supply chains...;

- Leveraging public procurement...;

- Enabling dispute resolution and access to remedy in the event that companies or government responses fail to meet RBC standards linked to recovery measures.

[Click below for a flyer or download the full note including "[c]oncrete steps [for] companies".]

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Article
24 April 2020

UK's largest fund manager says it will take action if companies fail to show good corporate practice during COVID-19

Author: Mark Sweney, The Guardian

"Legal & General warns firms to act fairly during coronavirus crisis", 22 April 2020

One of the world’s largest fund managers, Legal & General Investment Management, has warned companies it will take action if they fail to show good corporate practice during the coronavirus crisis.

The UK’s largest asset manager, which has more than £1.1tn in assets, is expected to take a tough stance against company directors who mistreat employees and suppliers during the pandemic, after opposing the re-election of 4,000 directors at annual meetings last year.

“I worry that the industry could fall short at this juncture,” said Sacha Sadan, LGIM’s director of investment stewardship. “Sustainability, good governance, and fair treatment of employees will be the building blocks of a better future. LGIM will continue to support and hold companies to account for their stakeholder responsibilities.” ...

The company said it had taken sanctions against 11 companies named as “laggards” for failing to take sufficient action on climate change...

As well as the response to coronavirus, LGIM said it planned to focus on key corporate governance areas such as diversity, employee pay and data privacy.

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Article
22 April 2020

COVID-19 business aid: Danish Govt. & Parliament set conditionalities on tax & dividend payments and say companies should follow UNGPs

Author: Danish Ministry of Finance

'Aftale om hjælpepakker til lønmodtagere og virksomheder mv. i forbindelse med gradvis genåbning af Danmark', 18 April 2020

Unofficial summary translation of Danish original, linked below

Agreement on aid packages for employees and companies in connection with the gradual reopening of Denmark

[A]pplicant companies, as a condition for receiving compensation… must state that [they] will not pay out dividends or buy back own shares for the financial years 2020 and 2021. The condition will apply to companies receiving more than DKR 60 million in compensation in 2020…

Appendix 13. Corporate social contributions

 …The contracting [govt. and parliamentary] parties agree that companies applying for compensation after the extension of the [business aid] schemes should follow the UN Guiding Principles on Business and Human Rights and... pay the tax to which they are liable under international agreements and national rules.

This means that companies based in tax havens in accordance with EU guidelines cannot receive compensation insofar as it is possible to exclude them under EU law and any other international commitments entered into by Denmark or the EU…

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Article
20 April 2020

Commentary: Will Covid-19 accelerate the shift towards stakeholder governance?

Author: Luca Giacalone, Board Agenda

[T]his crisis and its aftermath may make louder the calls for the adoption of a more stakeholder-oriented decision-making process at companies...

[C]ompanies across all sectors have been reconsidering their distributions to shareholders to preserve cash within the business and support its stakeholders...

In the US, companies receiving federal funds from the $2.3trn stimulus package will have to suspend share buybacks. Similarly, the French government asked companies relying on government support to scrap dividends or halt share buybacks. In the banking sector, the European Central Bank and the Bank of England have also acted swiftly, requesting banks to halt distribution to shareholders and focus their resources on supporting the economy...

Legal & General Investment Management [...] stated that it is mindful that the suspension or reduction of payments to shareholders may be necessary to guarantee the long-term sustainability of the company. Notably, LGIM asked companies to “focus not only on shareholders”...

BMO Global Asset Management [...] also expects companies to reconsider their share buybacks programmes..., while UK asset manager Schroders [...] asked companies that they “prioritise their key stakeholders, in particular employees but also customers and suppliers”... 

Some examples where executives have been agreeing to pay reductions include The Walt Disney Company, Rolls-Royce and French firm Kering. While investors are not explicitly requiring these pay reductions, the alignment between executives and employees has become a key focus for them in recent years.

Companies have also taken important actions to support their employees and communities that they serve in. For example, US retailer The Home Depot expanded its paid leave benefits for both full-time and part-time employees while French food maker Danone established a €250m facility to help its 15,000 small business partners and has taken steps to guarantee the income of all employees until the end of June...

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Article
20 April 2020

Denmark and Poland are refusing to bail out companies registered in offshore tax havens

Author: Bill Bostock, Business Insider

Denmark and Poland are refusing to let companies registered in offshore tax havens access financial aid from their coronavirus bailout packages.

The Danish finance ministry on Saturday extended its bailout program into July but stressed that firms based in tax havens would no longer be covered...

Poland took similar measures on April 8...

[Prime Minister Mateusz Morawiecki said:] "Let's end tax havens, which are the bane of modern economies" ...

It is unclear whether other European nations will follow the example of Denmark and Poland...

"Companies that seek to dodge their obligations to broader society by cutting their tax bills shouldn't expect to get bailed out when things go wrong," Robert Palmer, the executive director at Tax Justice UK, told Business Insider...

"Sustainable, robust public responses to shocks require administrative capacity and tax resources," Rasmus Corlin Christensen, a research associate at the International Centre for Tax and Development [said]...

"Tax avoidance and global tax competition, more broadly, strain the ability of countries to raise those resources." ...

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Article
20 April 2020

Denmark joins Poland in excluding firms registered in tax havens from COVID-19 aid

Author: Nikolaj Skydsgaard, Reuters

'Denmark blocks firms registered in tax-havens from state aid'

Denmark has become one of the first countries to ban companies that are registered in tax havens from accessing financial aid during the coronavirus pandemic...

Additionally, firms applying for an extension of Danish state aid must now promise not to pay dividends or make share buy-backs in 2020 and 2021, it said...

Poland, one of Europe’s most vocal opponents of tax havens, was the first to restrict large firms’ access to state aid based on whether they pay taxes in Poland earlier in April.

Estimates of tax evasion vary widely, but tax havens collectively could cost governments between $500 and $600 billion a year in lost revenue from corporates, according to some researchers.

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Article
20 April 2020

Denmark: Govt. excludes companies paying out dividends, buying back shares or registered in tax havens from COVID-19 business aid

Author: Bloomberg Tax

"Denmark Extends Business Aid to Increase Spending By $15 Billion", 18 April 2020

Denmark extended the duration of its aid programs to businesses and workers and added some new measures to increase spending by about 100 billion kroner ($15 billion).

The government agreed with all parties in parliament to keep aid measures available until July 8, a month longer than previously planned, according to a statement on Saturday. Companies will now be able to get back some value added tax (VAT) payments they made last year as zero-interest loans.

The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs, which now amount to a total of 400 billion kroner, when including loans and guarantees.

Finance Minister Nicolai Wammen said in an interview with broadcaster TV2, that Denmark, which is rated AAA, plans to finance new measures partially by issuing government bonds.

“We have a stronger position than many other countries and we are able to borrow money to get through this situation in the best way possible,” Wammen said...

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Article
6 April 2020

Principles for Responsible Investment launches two signatory COVID-19 investor response groups

Author: Investment & Pensions Europe

"PRI launches signatory COVID-19 investor response groups", 3 April 2020

The Principles for Responsible Investment (PRI) has launched two signatory groups to facilitate discussions about investor responses to the COVID-19 crisis.

One is about responses to the crisis in the short-term, while the second is about ensuring “a sustainable financial system” in the economic recovery phase.

The groups were foreshadowed in a briefing from the PRI last week about “immediate actions” responsible investors should take in response to the COVID-19 crisis.

It identified seven in total, starting with engaging with companies that are “failing in their crisis management”.

The organisation said investors should encourage companies to practice responsible financial management that allowed them to prioritise employees, contractors, suppliers and the longer term health of the company itself over bonuses for executives, and buy-backs and dividends for shareholders.

Although investors should give management and boards the space to focus on crisis management, they should also be on watch for examples of companies or governments “using the cover of the crisis to avoid scrutiny”...

Another recommended action [...] was for investors to “use their public voice to encourage governments and companies to take appropriate action”...

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