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Five ways tax leaders can help achieve sustainability goals

Sustainability is a business imperative where tax plays a critical role

Deloitte research reveals that tax departments are actively helping their companies with sustainability initiatives through compliance and Environmental, Social and Governance (ESG) reporting, with a majority feeling they are on top of sustainability for the moment. However, to keep up with the demands of sustainability, others suggest specialisation and advisory support related to ESG is required.

Deloitte surveyed 335 tax leaders globally finding that while tax departments are supporting their business’ sustainability efforts through compliance and ESG reporting, they can do more to help their organisation accelerate their sustainability goals and address a central business issue. The report provides five easy steps for tax leaders to take to optimise business sustainability performance.

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People used to see sustainability as one of those fluffy things, with the idea that sustainability teams would work in their little corner without much support from other teams. But with the pressures coming from regulators, investors and others, and the [sustainability] targets that we’ve put out there publicly, there was a realisation that if we’re going to take this seriously, we have to do this as an organisation and make tax and finance part of the journey.

Stephanie Fielding, Director of Tax and Sustainable Finance, Bupa

Take these five steps to help optimise business sustainability performance from the outset

1 - Identify the tax implications of your business’ ESG strategy

Compliance and reporting are critical, but tax leaders should also highlight the tax incentives, savings opportunities and, other sustainability-related benefits that may be available to the business. Additionally, tax can help business leaders understand the tax impact of sustainability-related changes to supply chains, business models, mergers & acquisitions (M&A) and other strategic shifts they may be considering. Furthermore, the tax function will need to help the business understand the tax implications of new sustainability-related processes and technologies. It may also be useful for tax specialists to be connected to R&D, technical and development teams, to help factor the availability of grants, early in the product development process.

A good place to start a deeper conversation

89% of Deloitte’s survey respondents indicated their companies have designated a chief sustainability officer (CSO) and 72% indicated they already work very closely with the CSO:

 

Working with chief sustainability officer

Figure 1
2 - Understand the tax implications of your company’s value chain

For many companies, meeting aggressive carbon and climate change goals will often mean making fundamental changes to operations. As always, these business transformations will have tax consequences. Remind your business leaders that sustainability-related supply chain changes will require consideration of intellectual property (IP) ownership, transfer pricing, VAT and customs impacts.

Other considerations:

  • If operating across multiple jurisdictions, be prepared to work with an increasingly complex environmental tax landscape as more regulations and taxes are introduced.

  • Monitor trends such as the role of green finance, carbon credits and look for new opportunities.

  • Be mindful of environmental and carbon taxes.

When it comes to changes in your organisation’s value chain, it’s important to advise business leaders on the risks and how to navigate them, but also highlight opportunities by way of credits and incentives that could deliver more value back to the business.

3 - Prioritise tax transparency on ESG matters

The area of ESG moving fastest in tax appears to be the G, which is governance. In Deloitte’s survey, tax and finance leaders were asked which initiatives were most important to their ability to provide sound tax governance and visibility. Compliance with regulatory requirements for governance topped the list.

Governance and tax initiatives

Figure 2

As new policy and tax-reporting requirements emerge, tax can establish accurate key performance indicators (KPIs) to facilitate transparent disclosure and reporting. Tax leaders should also look outside the company to collaborate and engage proactively with policymakers, peers and regulators to influence tax policy.

Tax leaders have a different vantage point than their departmental peers. They can see across the business in ways others cannot. This beneficial point of view means tax is positioned to contribute broad, strategic perspective and an assessment of how sustainability goals are progressing across the business.

We're one of the only functions that looks right across the business and sees the whole picture. Many business counterparts will be focused on individual KPIs which they're targeted on. Whereas what we see, are all those different businesses from KPI positions to the bottom line, including capital. Often, our vantage point means we are the first to be aware of issues which others may have overlooked.

Jon Priestnall, Group Tax Director, Aviva

4 - Transform the tax operating model as it relates to ESG

Depending on your industry, sustainability will place significant new demands on talent in the tax function and require skills in everything from indirect and transfer taxes to assessing the impact of new carbon-reducing technologies, modelling potential scenarios and analysing governmental policies.

In Deloitte’s survey, tax leaders provided insights into the factors that would help elevate the tax point of view in sustainability conversations. The list included factors such as “greater collaboration/communication within the organisation.” Tax leaders’ responses also included “more resources/information.”

Starting the conversation.

Figure 3

The softer skills of communication and building business cases will be key to working closely with the business. Tax leaders can consider upskilling and diversifying the roles on their teams, acquiring new talent, increasing automation and, outsourcing/partnering to access the capabilities they need to meet increasing ESG-related business advisory needs and demands.

ESG illustrates another reason tax department transformation is needed. The focus on transparency and the resource required to support ESG initiatives provides incentive to free up resources by using digital and artificial intelligence (AI) technologies to automate rote tasks such as compliance and filing process.

5 - Agree on ESG tax and responsibilities

As tax leaders revisit their tax operating models to create capacity for ESG-related advisory and compliance activities, this should include clarifying the role of the tax function and how it will interface with the business in these matters. Sustainability touches on many aspects of the company, and some of those areas may involve taxes that are beyond the traditional mandate of the tax function and handled instead by HR and payroll, for example.

Thus, tax leaders should clearly establish who is responsible and accountable for ESG tax matters—which can range from plastic packaging taxes to minimum wage issues—and ensure that they have the right level of oversight in areas where they don’t have day-to-day control.

With sustainability, especially in tax, there are lots of things to be considered. So, this is an example of how tax and finance, globally and locally, can be involved in such an important project where we shape the market in the future—and have the ability to make a substantial and certain impact.

Jian Teng, Executive Finance Director, Gilead China

Taking tax to the next level

Sustainability measures are likely to start to permeate every aspect of business in the not-too-distant future.

Our survey found that while many tax leaders feel they are on top of sustainability issues for the moment, others suggest specialisation and advisory support related to ESG is required. With more change anticipated, tax leaders need to have broad understanding of these fast-evolving areas of sustainability to distinguish themselves and create value for the business.

Tax leaders who help to embed tax into business strategies and financial decisions from the outset are becoming more integral and valuable to their companies than ever before and, by doing so are making themselves indispensable. Those that are not prepared for these conversations may leave value on the table.

About the Research

The research discussed in the paper “Five ways Tax Leaders can help achieve ESG goals” is based on online surveys with 335 tax leaders across Europe, North America and the Asia Pacific regions. KS&R, a global independent market research and consulting firm, also conducted a series of in-depth one-on-one interviews with tax leaders to garner additional insight.

Respondents were all executives (C-suite, owner/partner, board of directors, head of business unit/department, or director/VP) from the finance, risk assessment or tax functions, within large enterprises. They represented companies in the consumer; financial services; life sciences and healthcare; energy, resources, and industrials; and technology, media, and telecom industries. All respondents were from organisations with an annual revenue of at least US$500 million.

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