As governments face mounting pressure to collect tax revenue, companies will increasingly bear the burden - with sugar tax and carbon tax as two key examples, says Jessica Ground, global head of stewardship at Schroders.
South Africa is no exception, with National Treasury expecting a revenue shortfall of R42.8bn - an increase of R15.4bn over the R27.4bn estimated in the mini Budget in October.
Speaking at the annual Investment Symposium hosted by the global investment manager in Cape Town on Tuesday, Ground said corporates would need to prepare for a host of outside pressures. Certain externalities - costs or benefits of an economic activity that are by an unrelated third party, but that are not reflected in the price of the goods produced - would need to be priced into business models going forward, she argued.
These included rising taxes, scarcity of resources, and environmental factors.
"Some companies have grasped this, but others have not," Ground said. "The potential impact of carbon tax, for instance, has to be taken seriously."
Water has also been under-priced in the past, she warned.
"So far, water has been an under-priced commodity for companies, but those externalities are going to have to be priced in much more into business models as government revenues become more and more under pressure," she said.
Proactive steps
In 2016, Schroders studied the impact of water shortages on the beverage sector. The company also created a toolkit of questions investors could ask to determine the sustainability of a company in this regard.
Discussing the study, Ground cited SA Breweries (SAB) as an example of a company which took proactive steps to handle the water shortages in the Western Cape.
"We mapped the exposure of individual companies to water sustainability issues and what they are doing to mitigate the challenge," said Ground.
"SAB was a great example of management taking quite good steps for mitigation. Our follow-up research in 2018 showed SAB was well positioned to handle the challenge brought by the drought."
According to Ground, there are many myths that sustainable investments do not bring good returns.
"Care for the environment is not just a 'nice to have' for companies anymore," said Ground.
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