Investors need to ensure that companies play by the rules set by societies to stop the march to totalitarianism, according to the founding chair of Norway’s sovereign wealth fund.

Speaking at IPE’s annual conference in Vienna, Knut Kjaer said investors needed to spend more time trying to understand China, which was aspiring to build its version of a ‘new world order’, and that there were also threats to liberal democracies from within.

He pointed to 16 years of democratic decline and a shift from truth-seeking to lies and conspiracy theories, and from rule of law and protection of minority shareholders’ ownership rights to control by the government.

A widening of income inequalities and a hollowing out of the middle class were some of the factors contributing to the trends undermining liberal democracies, according to Kjaer, who is also executive chair of  Sector Asset Management.

Asked how investors should react to these changes, Kjaer said “this is the most important part of the ESG agenda for me” and that minority shareholders are “the weakest stakeholder”, very dependent on the rule of law and institutions functioning.

“So investors should stop companies that lobby against what is in the interest of societies,” he said.

He gave the example of the taxes paid by companies, saying investors should be aware of a “race to the bottom” and that they should support the minimum tax rate that was decided by some 140 countries.

Some pension funds are already on board with this principle. In Denmark, for example, PBU and Sampension recently entered into a partnership with other institutional investors to press multinational companies to take a more responsible approach to tax.

PBU’s ESG chief said that although corporate tax had previously been regarded primarily as a political and legal field, ”there is now a clear tendency for more and more international investors to view responsible tax payment as a new area of ESG in line with anti-corruption and bribery, for example”.

The minimum tax rate deal was struck in 2021. Steered by the OECD, the negotiations resulted in 136 governments agreeing companies should pay a minimum tax rate of 15%.

The countries behind the global minimum tax rate together account for over 90% of the global economy, with the OECD having estimated that the minimum tax rate would generate $150bn (€127bn) in additional global tax revenues annually.

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