Once a niche investment approach thought to come at the expense of returns, ESG investing – strategies that align with a company’s Environmental, Social, and Governance values – has grown into a $30 trillion market as of 2019. Issues such as energy consumption, health and safety, diversity and inclusion, and effective board oversight are having a greater effect on the financial performance of companies – and investors have taken notice.
One underutilized strategy that can enable companies to significantly boost their ESG performance is tax credit investment. By repurposing and redirecting a company’s estimated tax payments into qualified tax advantaged investments, companies can achieve triple bottom line results while fulfilling their ESG commitments.
What are Tax Credits?
A tax credit is a government-sponsored tax incentive that can reduce a company’s tax liability dollar-for-dollar. The U.S. government uses tax credits to incentivize corporate taxpayers to invest in certain types of projects that produce economic, environmental, or social benefits. Federal and state governments offer tax credits to promote public/private partnerships, encouraging investment capital to flow to beneficial domestic programs, such as:
• Affordable housing,
• Historic preservation,
• Sustainable energy,
• And carbon sequestration.
Tax Credit Investment & ESG Investment
Investing in tax credits, which in turn benefit both the investor and the community at-large, is a clear and simpler avenue of providing investors a framework with which to evaluate investments.
In a new white paper, Reuters Events and Foss & Company share best practices from Patagonia, Facebook, Harvard University, BNP Paribas and more. These examples outline why tax credit and ESG investments together have the potential to incorporate climate-positive and social-impact initiatives into a company’s investment and underwriting policy framework, aligning with their mission and values.