Burgess COMMENTARY

Peter Burgess

Tax Justice

Taxation is one of the cornerstones of democracy. It is the very lifeblood of the social contract as it allows the state to pool the citizens’ resources in order to fulfill its obligations to its constituency. It allows the construction of the physical, social and legal infrastructures that enable practically everything else in the state.

Every year, all around the world, enormous sums are secreted away through aggressive tax-planning. In July 2012, the Tax Justice Network published a research according to which at least 21 trillion dollars of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010. A World Bank report published in 2012 claimed that Israel has some of the highest levels of unreported income in the developing countries: 23% of its GDP.

A tax system that does not succeed in collecting the taxes due, may drive the state into an economic crisis that would, in turn, increase social and economic disparities. Thus, when citizens – and particularly corporate citizens – avoid paying their taxes, they restrict the government’s ability to provide services and, in the final analysis, hurt themselves.

The tax justice section in the Corporate Social Responsibility Institute, alongside Tax Justice Network Israel (TJN IL) are both part of the Academic Center of Law and Business. Together they address the issue through published reports, position papers, and proposals for legislative reform. The main areas that the tax justice section has been working on have been: the extent of tax evasion, the connection between CSR and taxes, the Encouragement Law for Capital Investment and the issue as well as Country by Country Reporting.

Sustainability Reporting

What is a Sustainability Report?

A ‘Sustainability Report’ or ‘Corporate Social/Environmental Responsibility Report’ is a document constructed according to certain standardized guidelines (most common are the Global Reporting Initiative’s) intended to give a transparent and balanced report of the organization’s social and environmental impact vis-à-vis its stakeholders: investors, workers, clients, NGOs, neighbors, etc. The reports include reference to the dialogue the organization has with its stakeholders, its current social and environmental challenges, and concrete plans to address those challenges.

The report’s methodology is intended to reflect the organization’s values and activities in a way that allows tracking of the organization’s progress over time and to facilitate comparison with other organizations. Building trust between the organization and its stakeholders is one of the goals of these reports. The very decision to publish a report often brings managers to look at the organization from a different perspective and sometimes serves in itself to promote changes within the organization – in its relations with its stakeholders, identifying issues that need attention or even opportunities that can be exploited.

History of CSR reporting:

• In the 1990’s a few progressive-minded corporations (notably in 1993, Vermont’s ‘Ben and Jerry’s Ice Cream’ and Britain’s ‘The Body Shop’ run by activist Anita Roddick) published ‘social audits’. These audits, which laid the methodological foundations for CSR reporting, were revolutionary in that they considered other-than-financial information as worthy – important even – of publication. The body shop published its first ‘Values Report’ in 1997.

• In 1997 the United Nations Environment Program and CERES (a coalition of American social and environmental NGOs and institutional investors) founded the Global Reporting Initiative (GRI): “A multi-stakeholder governed institution collaborating to provide the global standards in sustainability reporting.” The GRI has given CSR reporting a significant boost both in terms of prestige and in terms of the seriousness with which organizations are expected to compile their reports. The GRI, based in Amsterdam in The Netherlands, has been working since 2002 as a not-for-profit organization.

• The GRI’s primary purpose was to promote transparency in business and to encourage the measurement of corporations’ activities; primarily with respect to the environment. This goal has since been broadened to create a framework for sustainability reporting and guidelines for more general CSR reports. These guidelines were reviewed by 31 corporations in 2002 and again in 2006. The 2006 guidelines are known as the “third generation guidelines.” Likewise, in order to further refine the reporting, ‘Sector Supplements’ were developed for industries such as logistics and transport, electricity generation and the finance industry. These supplements address issues specific to each industry.

• In 2013, the GRI rolled out the G4 – the fourth version of its guidelines. These new guidelines have changed the rating system and emphasize transparency on issues most significant to both the social and environmental spheres.

  More information on the Global Reporting Initiative can be found here: www.globalreporting.org

Capital Markets

The Capital Markets Clinic is the first of its kind in Israel. The Clinic’s aim is to protect the investing public by developing and proposing legislation, regulations, guidelines and standards to the relevant bodies: the Knesset, the various government offices, regulatory bodies, the courts, the institutional investors and the publicly traded companies.

The Clinic concerns itself with issues such as

• Interested party transactions

• Unusual capital reduction or distribution of dividends

• Interventions by institutional investors

• Reducing economic centralization

• Conflicts of interest in valuations and economic reviews

• Contracts, benefits and compensation to top management.

Privatization and Regulation

In the field of privatization and regulation, the Corporate Social Responsibility Institute seeks to embed social and environmental values within both the privatization processes and the regulatory functions.

The Institute’s activity in the field of privatization and regulation is founded upon a recognition of the increasing influence of corporations in Israeli society. This trend owes much of its momentum to the deep privatization processes undertaken by the government since the 1980s. These changes have shifted the economic center of gravity and have led corporations to fill many functions that were once the sole mandate of the state. The changes have profoundly affected both the employment and service models common in Israel. The increased power of the corporations has engendered ethical expectations of them, namely: that they become more socially aware. This change requires, on the one hand, that the public reconsider its relation to the corporate world; and on the other, that the corporations instill social and environmental values as integral parts of their business activity.

Most of the work in this field is done by working with government agencies, contact with representatives and regulators, writing position papers and periodical reports, helping to word legislation, giving testimony before professional and legislative committees and through court cases.

The Institute is active mainly in these areas: infrastructure and energy, natural resources and the public domain, industry and trade, health and the environment, democracy and law, and public security (police).