Joseph Allen, director of the Healthy Buildings program at the Harvard Center for Health and the Global Environment, says the ability to calculate these savings – made evident with lower energy bills, for instance – and understand the return on investment has driven “green” uptake for the past two decades.

The U.S. Environmental Protection Agency defines the act of sustainable building as “the practice of creating and using healthier and more resource-efficient models of construction, renovation, operation, maintenance and demolition.” Yet the positive impact on protecting occupant health and the corresponding gains in worker productivity are often overlooked when discussing the financial merits of green building construction.

Recently, Allen has been involved in a renewed emphasis on trying to measure green buildings and human health. In a recent paper published in Current Environmental Health, he and his colleagues considered whether green buildings are healthier buildings, and asked what constitutes a healthy building. Since some studies claim we spend more than 90 per cent of our lives indoors, it’s a rather good question.

As costs of energy increased during the energy crises of the 1970s, buildings began to be constructed with the goal of increasing energy efficiency by making them airtight while also decreasing ventilation requirements. It’s here that an increase in “sick building syndrome” began to crop up, as less ventilation often allowed a build-up of indoor pollutants.

The effect on human health was one of the original catalysts for the green building movement, with certification regimes like Leadership in Energy and Environmental Design (LEED) now allocating design credits to buildings that improve ventilation and filtration and reduce chemical and other pollutant sources, along with other efforts to improve occupant productivity.

While plenty of studies link factors such as poor ventilation and mold growth to acute allergies and respiratory disease, there is a surprising lack of research that conclusively ties green building measures to healthier, happier and more productive occupants.

So, while building rating and certification programs such as LEED directly and indirectly target improvements for human health, Allen says practitioners are looking for evidence that supports better decision-making for healthy building design. It’s for this reason that the return on investment for human health measures isn’t always clear for building owners.

Nisha Sarveswaran is CEO of Ambience Data, a Toronto startup that offers air quality monitoring systems for buildings. “If you correlate environmental conditions such as air emitting high levels of carbon dioxide with variables like productivity, you can start to understand the impacts and place a value on investments that improve our indoor spaces,” says Sarveswaran.

“It’s [just] hard to justify spending money and energy on things we can’t see.”

Every study identifying a positive correlation between green buildings and health had until recently relied on self-reported data through questionnaires and surveys, leaving the data open to potential bias.

Researchers at Harvard have been working to fill in this data gap with more conclusive findings.

Allen was the lead author of a study published in October 2015 that examined the impact of indoor air quality on cognitive function. The study placed workers in rooms replicating the environmental conditions in office settings that met regular air quality standards, minimum air quality standards for LEED credit and a more stringent level for LEED credit, respectively.

Researchers designed the study using double-blinded repeated measures to ensure that workers were not tipped off about which setting they were in.

The results demonstrated that “people who work in well-ventilated offices with below-average levels of indoor pollutants and carbon dioxide have significantly higher cognitive functioning scores than those who work in offices with typical levels.” The decision-making performance of workers improved as air quality went up, including between the two LEED-quality room environments. The largest improvements occurred when it came to crisis response, strategy and information usage.

Allen says a critical element of his centre’s research moving forward is monitoring and evaluating building performance in real time. To that end, his group is now conducting studies that pair “wearables” – sensors that humans can wear – with building systems to track and measure physiological response to indoor environmental conditions. Combined with monitoring and alerts systems like the ones that Sarveswaran’s company offers, the resulting data could have endless applications.

Imagine a building that not only detects possible issues and alerts building maintenance staff, but also responds to human indicators and autonomously adjusts environmental conditions in real time.

The post Healthier buildings appeared first on Corporate Knights.

Sources: University of California-Berkeley study, IBM Global Parking Survey, Transportation Research Board, National Household Travel Survey, Nationwide, Nationwide Personal Transportation Survey, City of Chicago, Research and Markets

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Meanwhile, stakeholders are raising questions and putting pressure on asset owners. Some are motivated by concerns about ethical issues and consistency with mission; others are purely focused on risk and expected returns.

There is clearly a moral issue to consider in owning a public company that, for example, spreads misinformation and otherwise deliberately impedes public policy for private gain, but how far does that moral concern spread? Only a few institutions, such as the Rockefeller Brothers Fund, have announced divestment from all fossil fuels on moral grounds.

A significant number of large asset owners, including Stanford University, the California employee pension fund and the sovereign fund in Norway, have mandated that their managers divest from a narrower range of fossil fuel stocks, namely coal (which poses the biggest threat to the climate and whose business is the most likely to be constrained). Global insurance powerhouses AXA and Allianz have done the same.

But not everybody shares this view. The president of Harvard, Drew Faust, for example, wrote in a statement, “I do not believe, nor do my colleagues on the Corporation [Committee on Shareholder Responsibility], that university divestment from the fossil fuel industry is warranted or wise.” Harvard holds endowment assets to advance an academic mission, she explained, not to “serve other purposes, however worthy.”

Most investors are still considering what to do.

The World Wildlife Fund, where one of us serves as the chair of the investment committee, began to address this issue almost three years ago. Rather than divesting of all fossil fuels, WWF hedged the valuations of the stranded assets (those negatively impacted by emissions pricing). Beginning in January 2014, WWF entered into a simple total return swap (short coal and tar sands, long S&P 500).

At the time, the swap was viewed as a hedge, but in retrospect acted as a wonderful investment strategy. Since then, stranded assets have dramatically underperformed the market and the swap has generated total returns in excess of 84 per cent.

But given the dramatic decline in the valuations of most fossil fuel companies that has already taken place, it’s not clear what an investor should expect to happen going forward. We think it’s not too late to benefit from selling stranded assets.

Certainly there’s broad acknowledgment that the climate is changing, emissions of greenhouse gases are the cause and society will have to take appropriate steps to address the risks associated with climate change. Implicit in that understanding is a recognition that despite the frictions created by entrenched interests, there will be a transition to a low-carbon economy. We suspect that these expectations are already priced into equity valuations. The uncertainty is how and when that transition will take place, as well as the extent of the climate change-related damages that will nonetheless occur.

So far, societal reaction to climate risk has been slow. Just 12 per cent of global emissions are currently subject to a carbon price, with many of these set too low to make much of a difference. Exxon argued in a report to shareholders recently that the valuation of its reserves is secure because governments will never pay for a low-carbon scenario. We suspect that equity valuations today build in similar expectations of a slow policy response over the next several decades while discounting technological breakthroughs threatening to displace fossil fuels with more cost competitive alternatives.

And what we suspect the market does not yet realize is that this expectation, sometimes referred to as the “slow policy ramp,” does not make sense – it does not properly take climate risk or dynamic innovation into account. The actual rational expectation for the price path of emissions is a sudden jump of global carbon emissions prices (via direct and or indirect measures) to a level high enough to create incentives that will, with extremely high probability, promptly eliminate the burning of fossil fuels that threaten catastrophic climate risk. Of course, no one knows what the future will bring, but we think the probability of this rational pricing of emissions is much higher and will come much sooner than the market expects.

What will bring it about is legitimate fear of catastrophic outcomes and the rational response – which is to price the risk appropriately, immediately.
The reason a sudden jump in emissions prices makes sense is because carbon pricing is the brake society has to create through appropriate incentives for emissions reduction. How hard should society press on that brake today? The answer requires application of a complex mathematical technique known as robust dynamic optimal control in a context with highly uncertain nonlinear responses – but simple intuition can be just as effective in helping to chart the course.

Consider two scenarios. In the first scenario you are racing down a mountain road with a sharp curve ahead. You are going fast, but you’ve been down this road many times so you know that you need to slow down significantly to get around that curve safely. And you know exactly how much distance it takes to slow down to navigate the curve. You brake slowly at first, increasing the pressure as you get closer to the curve. This is the profile of the slow policy ramp for emissions prices built into current equity valuations.

In the second scenario the situation is identical, except you’ve never been down this road before. In the instant you see the curve, you realize that you need to slow down but you aren’t sure the speed at which it will be safe to round that upcoming corner – which is sharper now than it initially looked. As time compresses, you realize you might be going too fast and you need to slam on the brakes.

The difference between scenario one and scenario two is uncertainty and risk aversion. In scenario two, as soon as the risk is recognized you brake hard enough that you expect to ease up on the brake as you slow down safely. With respect to climate change, science has recognized the risk, but society has not yet hit the brake. Our view is that equity markets have not yet realized that when we do, we will have to hit the brake hard.

While it is uncertain when society will react, and how this impending response will impact most assets, we do know which sectors will be impacted most acutely: those that produce or consume significant carbon-based fuels. Therefore, the opportunity continues to exist to reduce stranded asset risk by hedging or selling the companies whose valuations may be hit hardest by emissions pricing.

As part of their fiduciary responsibility, investors must have a view on how climate risk will influence portfolio valuations, and key to this is their view on whether or not people do become more rational over time. An investor could take the view that this is not the case and policy makers will not meaningfully price carbon, and fossil fuels will continue to dominate over clean energy. But they must have a view as part of their duty of care, given the macroeconomic significance of climate risk.

Our view is that public opinion and policy are close to a tipping point on this issue, and if this view becomes widespread it will become a self-fulfilling prophecy. Stranded asset valuations will decline, emissions will soon be priced appropriately, and the transition to a low-carbon economy will take place much faster than is currently anticipated.

The post Defending divestment appeared first on Corporate Knights.

In a significant break from its peers, American food processing giant Campbell Soup Company in January became the first major U.S. food company to begin labelling all of its domestic products with genetically modified (GMO) labels. It also declared its support for any federal legislative action requiring the adoption of a single mandatory GMO labelling standard. “Printing a clear and simple statement on the label is the best solution for consumers and for Campbell,” President and CEO Denise Morrison explained in an open letter to employees.

The company made clear it remains a strong proponent of including GMOs in many Campbell products, arguing that transparency is what consumers are clamouring for. Nationwide polls have consistently shown overwhelming support for increased GMO disclosure. An Associated Press-GfK poll conducted in 2014 found that two-thirds of Americans support labelling of GMOs on food packages, while a Mellman Group survey found 89 per cent of respondents in favour.

The battle over mandatory GMO food labelling in the U.S. has heated up in recent years, with perceived inaction in Congress leading to movements at the state level to pass their own labelling laws. Ballot initiatives in Oregon, California, Washington and Colorado have all rejected mandatory GMO efforts, with industry-led opposition devoting substantial resources to fighting these initiatives. In the Northeast, proponents have had more success. Vermont passed a law that would see the adoption of mandatory labelling of GM food by July 2016, although it is currently being challenged in court. Both Maine and Connecticut will adopt labelling only if a number of regional states jump on board first.

While Campbell is hopeful that a federal legislative fix will come about soon, it plans to move forward with its own GMO labelling system in the interim. It will maintain its present opposition to individual state labelling laws, arguing that these are confusing for consumers and manufacturers alike.

Large food and biotechnology companies in the U.S., along with industry groups such as the Grocery Manufacturers Association (GMA), continue to fight against both state and federal efforts to institute mandatory GMO labelling.

 —

Zero: Congo Dongfang Mining International

Congo Dongfang Mining International (CDM) has been named as the largest purchaser of cobalt linked to child labour in the war-torn Democratic Republic of the Congo (DRC), according to a report released in January by Amnesty International and Africa Resources Watch. The DRC is the source of over 50 per cent of the world’s cobalt, with 20 per cent of its supply originating from smaller artisanal mines in the country’s south. UNICEF estimates that at least 40,000 children work in mines across the south in unsafe and toxic environments. At least 80 miners died underground in this region between September 2014 and December 2015.

Researchers for Amnesty International found that much of the output from these mines is purchased by traders that turn around and sell it to CDM, a wholly owned subsidiary of China’s Zhejiang Huayou Cobalt. The cobalt is processed by CDM and then sold to three major battery component manufacturers in South Korea and China. These manufacturers claim to supply a list of multinationals that includes Apple, Microsoft, Volkswagen and Sony. Cobalt is prized for its application in lithium-ion battery production.

This is not the first time that CDM has been linked to child labour in the Congo. After similar allegations surfaced in 2008, the company switched to sourcing cobalt exclusively from licensed traders that agreed to follow the company’s code of conduct. Yet when questioned by Amnesty researchers about their recent findings, the company responded that it “reasonably presumed that the behaviours of suppliers complied with relevant regulations of the DRC and [had] taken the corresponding social responsibilities.”

None of the 16 multinational corporations named in the report was able to provide enough information to independently verify that its supply chain was clean, although seven companies denied sourcing cobalt from either the CDM or the DRC. “Many of these multinationals say they have a zero tolerance policy for child labour,” said Amnesty International researcher Mark Dummett. “But this promise is not worth the paper it is written [on] when the companies are not investigating their suppliers.”

Cobalt was left out of the conflict minerals provision of the 2010 U.S. Dodd-Frank Act that required companies listed in the U.S. to report on any tungsten, tantalum, tin and gold sources from the DRC or surrounding regions appearing in their supply chain.

The post Heroes & zeros: Campbell’s and Huayou appeared first on Corporate Knights.

Only 28 years old, the French-born Zucman, assistant professor of economics at University of California, Berkeley, has already made a name for himself as the most prominent voice in economics focused on tax havens. Back when Piketty was his PhD thesis advisor at the Paris School of Economics, he encouraged Zucman to begin looking into the connection between taxes and inequality.

Zucman’s major breakthrough came when examining a long-running discrepancy in global economic data: the fact that financial liabilities around the world add up to trillions of dollars more than the reported financial assets held by investors. Zucman found that this money was appearing as shares in mutual funds incorporated in tax havens. This allowed him to begin mapping out the world of offshore tax avoidance.

The concise and accessible book, published late last year, distills his research into a powerful denunciation of tax havens and their role in expanding income inequality. Estimates of personal offshore wealth used by Zucman remain on the conservative end of the spectrum because they don’t include non-financial assets like real estate, gold and art, but still bring home the point that tax havens siphon hundreds of billions of dollars away from government revenues each year.

CK contributor Richard Eskow recently caught up with Zucman to discuss the size and growth of tax havens, their impact on tax revenue and what can be done to curb their proliferation.

CK: Why are tax havens such a problem?

Zucman: Every country has the right to choose its own forms of taxation, to have low tax rates if they want to, but what tax havens do goes beyond this. They steal the tax revenue of other countries by making it easier for tax dodgers to evade their own tax obligations. They do this by cooperating very little with foreign tax authorities, by enabling multinational companies to artificially shift a huge amount of their profits or because they make it easy for money launderers to hide their profits and to conceal wealth. So that’s the problem, it’s an externality – like pollution.

CK: What brought you to studying tax havens in the first place?

Zucman: One main reason is that I’m interested in inequality. The way we measure inequality in economics is by looking mostly at tax-returns data and survey data. But of course when you look at tax data, you only capture the income or the wealth that people report and not the income that they don’t report – the income that evades taxes. So I wanted to have a sense of how much we are missing. How much are we underestimating inequality when we use tax data? So I started looking at, okay, can we have a sense of the amount of wealth that is in tax havens globally?

CK: The magnitude of wealth that is stored in offshore tax havens is starting to feel a bit like dark matter, distorting the physical universe. We don’t see it, but there’s a lot there.

Zucman: By my estimation, there is about $7.6 trillion (U.S.) held by rich individuals in offshore bank accounts across the world. This $7.6 trillion is equivalent to about 8 per cent of the world’s total household financial wealth, and that’s a global average. For Latin America, it’s more than 20 per cent. For Africa, it’s as much as 30 per cent. For Russia, up to 50 per cent. So for developing countries in general, a huge fraction of their financial wealth sits in tax havens. The implications both for the development of these countries and for the study of inequality are profound. From a revenue generation perspective, I estimate that this leads to almost $200 billion in annual losses to government revenues.

CK: You estimate personal offshore wealth in the U.S. sitting at 4 per cent, about $1.2 trillion. In Canada, a much smaller economy, this number sits at 9 per cent, about $300 billion.

Zucman: For the U.S., 4 per cent is a bit less than the global average, but the U.S. is also very exposed to and affected by the huge shifting of corporate profits. I’m not talking about individual wealth anymore; I’m talking about the profits of multinational firms like Google or Amazon. These firms shift their huge financial profits to tax havens, often legally, and this for the U.S. creates an additional tax revenue loss of about $130 billion per year.

CK: If Americans are hiding, on a personal level, 4 per cent of household income offshore, it’s likely that researchers are underestimating the magnitude of inequality in the U.S.

Zucman: There are many uncertainties about how wealth is distributed in the U.S. right now, for the simple reason that the available data on wealth is quite limited. There are no wealth stats. There are income stats, so you can get a sense of how income is distributed. There are registers of land and real estate that can be used to measure non-financial wealth, but there are no public registers of financial assets.

The best estimate we have is that the top 0.1 per cent of the wealth distribution in the U.S. owns about 22 per cent of total U.S. wealth today. It used to own 7 per cent of total U.S. wealth in the late 1970s. Now if you take into account tax havens, both the level and the increase of wealth in the very top shares of society would be even bigger, likely increasing to 23 or 24 per cent.

CK: Let’s talk about corporations. You write that the effective tax rate paid by U.S. corporations has been reduced by one-third since the late 1990s. To what extent do tax havens or the offshoring of tax revenue in general play into that steep reduction?

Zucman: Basically tax havens have played the main role. In the late ’80s and early ’90s, the effective corporate income tax rate in the U.S. was about 30 per cent. This falls below the federal statutory corporate tax rate by about 5 per cent. Today, the federal statutory rate has remained the same, but the effective rate paid by corporations in the U.S. has declined down to 20 per cent. So that’s indeed a decline of about 10 per cent. Now the bulk of this decline – maybe 6 or 7 per cent – owes to the growing shifting of profits by U.S. firms to zero-tax countries like Bermuda, so growing artificial profit shifting.

There’s one simple way to see this: ask U.S. firms to disclose the geographical location of their profits. What you see in the aggregate data is that 55 per cent of all the foreign profits of U.S. firms are made in a handful of tax havens like Bermuda or the Cayman Islands, where the effective tax rate paid by U.S. firms is about 2-3 per cent.

CK: What measures should be taken to combat this problem of hidden personal wealth?

Zucman: There are a number of potential remedies. First of all I’d like to say that there’s been a lot of progress in recent years in better fighting offshore personal tax evasion by rich individuals, namely the Foreign Account Tax Compliance Act in the U.S. It involves an automatic exchange of banking information between tax-haven financial institutions and the IRS.

This is big progress. Ten years ago, if you’d asked any tax expert about whether this is doable, whether one day there would be an automatic exchange of banking information, they would have dismissed the idea as too idealistic. It shows that significant reforms are possible, forms of international cooperation that are often dismissed as utopian can indeed materialize in relatively short periods of time.

At the same time, much more remains to be done. I would say that the main thing, in my view, would be to create a register or registries of financial assets in the same way that we have registers of real estate and land. These registers have existed for a long time in many countries, but they only capture the ownership of houses and land. They don’t include any information about who owns bonds and mutual fund shares and so on. What’s important to understand is that financial registers already exist today in many countries, but are only managed and used by private financial institutions. This information is only used for securities settlement; it’s not used for enforcing taxes, statistical purposes or even cracking down on the financing of terrorism.

What I think would be doable and important would be to transfer the ownership of this data to public authorities and to use this vast amount of information for the public good. Not only for the securities market and the well-functioning of these markets, which is important, but also for public goods like transparency, compiling good statistics on the distribution of wealth, monitoring financial stability and fighting tax evasion.

CK: And this intersects nicely with Piketty’s suggestions for the overall tracking of global wealth as well.

Zucman: It does. Piketty’s proposal is to have wealth taxes and ultimately a global wealth tax, but taxes are always more than taxes. They create information. A wealth tax would create a lot of information on the distribution of wealth so that we can have an informed debate about whether there’s too much inequality and how tax policy might affect that. Our proposals are very complementary because it’s hard to have a wealth tax if you can’t measure wealth in the first place, if you don’t have a recording system. We have a property tax system, for example, but the way they work is that we have registers that tally up all the real estate that exists in the country, and so on. To make a wealth tax work, you need to have the requisite information available.

This is an edited and condensed version of  an interview conducted by Richard Eskow for his show The Zero Hour.

The post The hidden wealth of nations appeared first on Corporate Knights.

This also has its drawbacks, as it takes the focus off not-so-large companies. A business wasting electricity due to a poorly insulated office leads to negative consequences no matter the size – increased costs, wasted energy and an expansion of its carbon footprint.

Corporate Knights continues to focus on the big corporate fish through our annual Best 50 Corporate Citizens in Canada, which targets companies with revenues of $2 billion or more and at least 2,000 employees. But starting in 2014, we also began to rank Canadian companies that fall under that threshold in a separate ranking known as the Future 40.

Over these past three years, we’ve observed a dramatic increase in transparency and disclosure practices at many leading medium-sized Canadian enterprises. This trend is particularly pronounced when it comes to resource productivity indicators.

This year, 90 per cent of companies on the Future 40 disclosed their energy consumption compared to 78 per cent in 2014. An impressive 90 per cent reported their carbon emissions versus 82 per cent in 2014.

The improvement is even more recognizable when it comes to the water and waste indicators. Corporations reporting water consumption jumped to 75 per cent, compared to 48 per cent two years prior; and 70 per cent reported how much waste they generated versus 43 per cent in 2014.

What many medium-sized companies are beginning to realize is that sustainability is not an expensive luxury only available to the largest companies, but an integral part of staying competitive in today’s marketplace.

This view is best exemplified by Horizon Utilities, the top company in this year’s Future 40 ranking (see here for profile). “Many people have asked me over the years why we spend more money on sustainability measures,” says Neil Freeman, VP, business development and corporate relations at Horizon. “And my response is that we spend less than you. Measurement gives us increased mileage on what we do spend.”

Perhaps more notably, disclosure has remained strong in both the energy and mining sectors despite the challenges brought on by the current period of low commodity prices. “It’s very encouraging to see companies in sectors facing strong fiscal headwinds deciding to maintain the scope of their sustainability reporting,” says Michael Yow, director of research at Corporate Knights.

Following Horizon in the ranking is the Greater Toronto Airports Authority, followed closely by Export Development Canada. Both companies have won the Future 40 ranking in previous years.

With a turnover rate of 22.5 per cent, a number of new companies also joined the list in 2016. These include the utilities London Hydro and EPCOR Utilities, as well as Edmonton International Airport and paper company Tembec.

There are several indicators in which smaller Canadian companies in the Future 40 outperform their larger peers on the Best 50 ranking, including maintaining a lower CEO to average worker pay ratio.

Elsewhere, however, smaller companies are struggling to keep up. Future 40 companies are failing to invest in the same percentages of research and development as their larger industry rivals.

Non-profit organizations like Mitacs are working to bridge this void by helping to build partnerships between academia and industry to spur further innovation, particularly among smaller enterprises (see here).

Once Ontario and Alberta implement their plans, 80 per cent of the country’s population will find itself under some form of carbon pricing. In addition, the federal government is signalling its interest in a national minimum on carbon pricing as a first of many steps towards reaching its aggressive post-Paris conference carbon reduction goals.

This presents both a threat and an opportunity for Canada’s business community. These Future 40 companies are among the best positioned to take advantage of it.

Click here to go back to the ranking landing page.

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An old power corridor was running through the Twelve Mile Creek watershed in the Niagara Peninsula, an environmentally sensitive area peppered with walking and cycling trails. Even though it would never be built today, the power lines were there and needed to stay in place for reliability reasons. Horizon was facing heavy criticism every time the foliage was cut back to protect the lines as it reduced the natural beauty of the area.

Instead of ignoring local concerns, Horizon decided to partner with the City of St. Catharines, the Niagara Peninsula Conservation Authority and Ontario Power Generation on a pilot project to replace the existing fauna with 5,000 native wild flowers, grasses and shrubs. This allowed for improved biodiversity in the area while also cutting the cost of maintenance going forward.

“So it was responsible stewardship of a difficult problem that made sense both for the community and from a cost perspective,” says Neil Freeman, VP, business development and corporate relations at Horizon.

Horizon is best known for its competitive electricity rates and strong customer service, earning top marks in the 2015 UtilityPULSE Electrical Utility Customer Satisfaction Survey. The municipally owned utility provides electricity for roughly 242,000 commercial and residential customers covering the cities of Hamilton and St. Catharines in Southern Ontario.

But it has also begun to gain recognition for the steady integration of sustainable development principles into its work over the past decade.

The first step involved measurement and transparency. In 2008, Horizon became the first utility in Ontario to begin following the Global Reporting Initiative sustainability disclosure practices, while also revamping its annual report to give equal attention to social, environmental and economic considerations.

“It was at this point that we started asking how sustainable development practices could enhance how we serve customers,” explains Freeman.

Horizon became one of the few utilities in the country to institute an infill development strategy, working to encourage further densification of Hamilton and St. Catharines.

This was achieved by first moving to minimize business startup costs at brownfield properties targeted for redevelopment by reducing connection fees. Horizon then created a database of the existing sites and the electricity assets that were already there so prospective buyers could maximize old equipment like transformers left over on the properties and cut costs even further.

“This is great news for the region and a shining example of smart growth development,” exclaimed then-provincial transportation minister Glen Murray at the time. The project went on to earn a Brownie Award from the Canadian Urban Institute.

The company also turned its attention to maximizing energy conservation efforts among its customers. In 2011, Horizon applied to the Ontario Power Authority’s Conservation Fund to develop an energy-density mapping tool so it could specifically target conservation marketing efforts to each building’s specifications.

“We then incented our conservation team with performance-driven metrics on both demand and energy conservation for our management people,” says Freeman. “Get us the conservation and earn us an incentive cheque from the province at the same time because it makes us a stronger business and lowers costs for the customers.”

Because of this and other conservation efforts, Horizon was the only utility in Ontario with more than 60,000 customers to hit both its energy production and conservation targets as required under Ontario’s long-term energy plan.

Horizon is in the midst of a public debate over a potential merger with three other major utilities, which would create the second-largest electricity distributor in Ontario. With disclosure practices not as strong at the three other companies, it remains to be seen if Horizon will be able to maintain its position as a sustainability champion in the years ahead.

Freeman agrees that the other utilities have a way to go on disclosure, but points out that they have been showing initiative in other areas like renewable energy. For example, PowerStream is the largest solar developer of any municipally owned utility in Ontario.

“What I can tell you is that the merger integration philosophy is of highest common denominator and not the lowest,” says Freeman.

Click here to go back to the ranking landing page.

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The post 2016 Future 40 results appeared first on Corporate Knights.

The last several years have seen a parade of increasingly cringe-worthy explanations from various multinational corporations seeking to justify their complicated tax avoidance schemes.

When pressed about Apple’s sophisticated offshore tax avoidance regime on CBS’s 60 Minutes last December, CEO Tim Cook dismissed the accusations as “total political crap. There is no truth behind it. Apple pays every tax dollar we owe.” At a hearing in front of a British parliamentary committee this past February, Google tax chief Tom Hutchinson asserted that the company wasn’t unfairly gaming the system. “We are paying the right amount,” he said.

Several members of parliament laughed in response.

It would be more refreshing if we heard what was actually going on: that many multinational firms are taking advantage of outdated corporate tax regimes to pay as little tax as possible across the board. A recent report found that at least 358 of Fortune 500 companies were maintaining offshore tax subsidiaries (see here for more).

Corporate tax avoidance brings with it a series of negative consequences. Declining corporate tax revenue leaves a revenue gap in government coffers and unfairly tilts the playing field in favour of larger firms with the resources to take full advantage of loopholes. And as economist Gabriel Zucman argues in his book The Hidden Wealth of Nations, it’s a contributor to growing inequality by reducing the effective taxation of capital – leading to higher rates of return for capital owners.

Corporate Knights believes that companies should contribute to the services and investments that directly benefit them in the countries in which they operate. It’s why we include a relative measurement of each company’s contribution to its fair share of taxes as one of the key indicators in all our corporate rankings.

Key sustainability benchmarking institutions like the Global Reporting Initiative recommend the disclosure of tax payment information because what is “frequently desired by users of sustainability reports is the organization’s contribution to the sustainability of a larger economic system.”

Now, there are a number of other vital ways in which corporations feed into the larger economic system, namely through income, employment and innovation. These shouldn’t be dismissed as inconsequential or inevitable.

There’s also a tradeoff between higher corporate tax rates and a firm’s ability to invest and remain competitive in the global marketplace. American firms have a point when they decry the 35 per cent corporate tax rate as out of sync with similar jurisdictions around the world.

But there’s a stark contrast between moving a company’s headquarters to take advantage of a lower corporate tax rate and looking to pay essentially no tax in any of the major countries you operate in.

Not surprisingly, we don’t see the latter argument being publicly articulated by the Apples and Googles of the world.

Momentum is building regarding national and international tax reform. It will take years and possibly decades to sufficiently reform tax systems around the world, but the impetus from a frustrated citizenry and cash-strapped governments will prove too great for those wishing to maintain the status quo.

In the meantime, shareholders have started to ask questions about how exposed they are to a changing tax landscape.

The UN Principles for Responsible Investment (PRI) recently released engagement guidance on corporate tax responsibility, while RobecoSAM added questions about tax policy for companies filling out the Dow Jones Sustainability Index questionnaire.

Explained PRI managing director Fiona Reynolds: “In the long term, well-run companies should pay an appropriate level of tax, adhere to the spirit as well as the letter of tax laws, and avoid the reputational, legal and financial risks posed by aggressive tax planning.”

The post Editor’s Note: Filing deadline appeared first on Corporate Knights.

Yet the 25-member United Nations committee on international cooperation in tax matters finds itself at ground zero in an escalating battle over how and where multinational corporations pay – or, more to the point, do not pay – their fair share of taxes.

The Group of 77 developing countries, led by India and China, wants to turn the committee into a more muscular inter-governmental agency that would have a voice in setting tax rules for many of the world’s biggest companies. Activists disrupted a meeting in Addis Ababa last summer by unfurling a banner that read: “If you’re not at the table, you’re on the menu.”

But the U.S. and other industrial nations where most multinationals are based have dug in their heels. The only concession that China and its allies were able to win in Addis was a deal that allows the private tax experts to meet twice a year instead of just once.

“The G77 really did stand their ground,” says Claire Godfrey, senior policy advisor at Oxfam, the U.K.-based charity. “They shocked the U.S., the EU, Canada and Australia with their stubborn resolve not to give in. But in the end they had to buckle.”

The tussle over the UN committee is one sign of a growing backlash against “beggar my neighbour” tax policies that enable – indeed encourage – multinationals to pay little or no tax even as they rake in huge profits.

“This is all about who makes the rules and to whose advantage the rules are set,” says Erika Dayle Siu, tax and development consultant for the secretariat of the Independent Commission for the Reform of International Corporate Taxation, a group set up last year to give developing countries a louder voice in international tax policy. “When you peel the layers back, there are deeper economic interests at stake here.”

In the U.S., the anger is directed at corporate giants that manage to channel a huge chunk of their earnings to low-tax jurisdictions overseas.

In the latest such case, Johnson Controls, a Wisconsin-based auto parts and industrial equipment maker, passed itself off as an Irish company in January as part of a deal to sell itself to Tyco International. The process, known as inversion, will enable Johnson to cut its U.S. taxes by at least $150 million (U.S.) a year. Apple, with headquarters in California, disclosed in January that it has parked more than 93 per cent of its cash, totalling $200 billion, outside the U.S.

Across the Atlantic, European Union members are increasingly worried about “a race to the bottom” as governments come under pressure to bargain new investment for low taxes. The European Commission estimates that a multinational doing business in several EU countries pays 30 per cent less tax on average than a company operating in just one country.

Worst off are poor countries that have neither the expertise nor the bargaining power to play the game to full advantage.

“The way companies are now taxed is a system designed a hundred years ago,” says Prem Sikka, an accounting professor at the University of Essex. “The current rules were designed when vast parts of the globe were under colonial rule. The last thing the colonial powers wanted was for companies to pay taxes to their colonies.”

Taxation principles originally outlined by the League of Nations determined that taxes on corporate profits should be paid to the country in which the profits were made. This is a principle that is being increasingly taken advantage of as multinationals shift the location of their profits to lower-tax jurisdictions through transfer pricing.

These transfer prices are the rate at which goods and services are transferred within a corporation. The League of Nations agreed that these prices should be the same as they would be on the open market. Although a good idea in theory, it’s here that multinational tax management has grown more creative.

The issues are complicated and often opaque. Siu notes that “even sophisticated tax administrations in the U.S. are hard-pressed to apply transfer pricing rules. Enforcement is not just a question of capacity. Is it even plausible to expect that two subsidiaries of one corporation would charge each other the same prices that independent companies would charge? This presumption is essentially a fiction.”

The UN Conference on Trade and Development estimated last year that intra-company transfers, transfer pricing and other tax avoidance schemes deprive developing countries of about $100 billion a year in revenues. If the calculation includes the loss of reinvested earnings as profits are shifted away to tax havens, the annual drain of potential development finance climbs to at least $250 billion.

The problem of tax avoidance by multinationals has generated a stream of studies, conferences and recommendations. But practical solutions have so far proved elusive.

Allison Christians, a tax law expert at McGill University, says “we’ve known about the problem of transfer pricing and tax base erosion for more than two decades. But each attempt to clean things up has met with political resistance from those who benefit from not cleaning things up. All they’ve done is ride out the storm of media attention.”

As the wrangling over the UN tax committee shows, those hurt by tax avoidance schemes – notably poor countries – are often no match for their opponents.

Big companies have the advantage of well-organized networks and deep pockets.

American Innovation Matters, a Washington-based corporate lobby group formed last September, has described the tax reform movement as “an effort to tax even more American earnings, and use them to pad the coffers of foreign governments.” Many members of Congress, especially Republicans, have seized on high-profile inversions as an argument for lower domestic tax rates.

Sikka lays some of the blame on the big four accounting firms which, as he puts it, employ thousands of people around the world for the sole purpose of helping companies and wealthy individuals dodge taxes.

He notes that Ian Barlow, who chairs the board of the U.K.’s revenue and customs agency, is a former KPMG partner, while John Whiting, one of its non-executive directors, was a tax partner at PwC for 25 years. “When you look at the board, you begin to wonder who really makes U.K. tax policy and enforcement decisions,” Sikka says.

Even so, there are signs of progress. The EU unveiled a package of anti-tax avoidance proposals in late January. Under these proposals, intra-company interest deductions would be capped at 30 per cent. A country could tax profits of a foreign-based subsidiary if its tax rate is lower than 40 per cent of the home-country rate. The proposals would make a start in defining a company’s “permanent establishment” for tax purposes.

The EU package builds on the Base Erosion and Profit Shifting (BEPS) project launched by the Organization for Economic Cooperation and Development (OECD) in 2013 and endorsed by the G20 last November. The BEPS initiative aims to ensure that profits are “taxed where economic activities deriving the profits are performed and where value is created.”

Critics charge that these initiatives fail to tackle the root causes of multinational tax avoidance. According to Oxfam, “the European Commission is choosing the lowest common denominator approach, which is very disappointing. The EU executive is certainly under pressure from nervous member states that have left open loopholes for companies to engage in aggressive tax planning.”

Ireland and the Netherlands are among EU members that have come under fire for lowering tax rates to attract multinational investment. Ireland announced plans last October for a 6.25 per cent tax on patents and other intellectual property, far lower than its standard 12.5 per cent corporate tax rate.

Despite such setbacks, the reform movement appears to have the wind at its back.

Says Christians: “Now things are different because NGOs and the media are virtuously helping each other advance the discourse. This means that the OECD and the powers-that-be cannot really say they’re doing something and then not do anything.”

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