Asset Management & Private Equity – Potential tax implications of linking ESG and carried interest

The integration of Environmental, Social, and Governance (ESG) criteria into the distribution of carried interest has gained traction as a means to incentivize fund managers towards socially and environmentally responsible investments. In response to increasing investor demand, carried interest structures are now being adapted to incorporate ESG criteria, and it is presumed that the demand will increase the forthcoming years. While traditional carried interest structures focus solely on fund performance, the inclusion of ESG considerations adds an additional layer to this conventional model. By aligning financial incentives with sustainable objectives, this mechanism encourages the allocation of capital towards socially responsible investments. Given these developments, we have in the enclosed memo delved into the potential Norwegian tax implications of linking ESG and carried interest and shed light on important considerations for participants in the financial markets, exploring the potential for linking ESG to carried interest.