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Exploring the integration of tax in EU sustainability regulations

Simon Brennan

This blog explores in summary how sustainable tax practices and tax transparency are part of key EU sustainability (reporting) regulations and what this means for companies. It focuses on how tax is integrated in the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS), the EU Taxonomy Regulation, and the Sustainable Finance Disclosure Regulation (SFDR).

Although sustainability is top of mind for many organisations, tax generally does not yet appear as a key consideration amongst the myriad of rules and regulations to manage. Tax is often also not yet integrated in companies’ sustainability strategies and reporting. In reality, though, tax is already an important aspect of many of the strategic and regulatory initiatives that companies need to manage, reflecting the fundamental role tax plays for a well-functioning society.

Integration of tax in the corporate sustainability strategy is necessary to:

  • support commitment to tax compliance, including paying the right taxes in the right places at the right times;
  • detect and use opportunities in grants and incentives to finance the corporate green transition;
  • apply robust governance on tax to manage tax impacts, risks and opportunities;
  • report transparently on tax, supporting (re)building of trust in corporate tax practices;
  • manage risks related to new taxes (e.g. carbon taxes) on the business model and value chain;
  • guard against aggressive tax strategies, i.e. those which involve contrived or artificial arrangements and lack commercial substance, which cause harm to society and the economy; and
  • ultimately, ensure tax positively contributes to the corporate sustainability efforts and avoids causing harm as a consequence of related controversy.

Various international organizations, including the United Nations (UN), the Organisation for Economic Co-operation and Development (OECD), the European Union (EU), the UN Principles for Responsible Investment (UN PRI), the Global Reporting Initiative (GRI) and the World Economic Forum (WEF), acknowledge the important role of taxes in sustainable development as well as the harm that aggressive tax strategies causes to society and the economy. This is also visible in the tax expectations various international investors have towards their investments.

The European Green Deal and sustainable finance

The regulations discussed below are interrelated and form integral components of the broader EU sustainable finance framework and the European Green Deal. Ambitions of this framework include the redirection of capital flows to sustainable investments, systemic integration of sustainability into risk management, and promotion of transparency. In all these ambitions, it is clear that tax is relevant, given its fundamental role in funding basic societal needs and as a policy lever for incentivizing sustainable development.


The CSRD and ESRS modernise and strengthen rules concerning the social and environmental information that companies must report. The rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment, and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.

If, based on the required double materiality assessment, a company and its stakeholders consider tax as a material topic, the company is required to disclose information on this matter in line with the ESRS. If the necessary standard is not available, which is the case for tax, entities can use the GRI standards to report on material topics2. For tax this means that the GRI 207 Tax Standard can be used for reporting under the CSRD.

Whether or not tax is considered a material topic depends on the process and outcome of the materiality assessment, for which criteria have been described in the ESRS. This process builds on the GRI materiality process, which has been already adopted by many organisations globally.

Next to the inclusion of tax in the materiality assessment, tax needs to be considered in the general disclosures of ESRS 2. This Standard, applicable across all sustainability topics, encompasses four dimensions: (1) governance, (2) strategy, (3) impact, risk and opportunity management, and (4) metrics and targets.

Last but not least, in a combination of ESRS 2 and ESRS S3 “Affected Communities”, tax is specifically mentioned as something that may have impacts on affected communities, for example “… aggressive strategies to minimise taxation, particularly with respect to operations in developing countries…”3.

When tax is not considered a material topic, for instance because other topics are considered to be higher priority and/or tax falls below the applied materiality threshold, companies can still choose to report voluntarily on tax matters. Companies that opt to share their tax approach and data do so for various reasons, including meeting specific tax disclosure requirements (e.g. UK Tax Strategy and EU Public Country-by-Country Reporting) which have sustainability considerations at their heart. At the heart is often the willingness to demonstrate responsible tax approaches, in narrative and in data, thereby addressing societal expectations and aligning with organizational sustainable business strategies. This helps to build trust within communities and strengthen the licence to operate.

EU Taxonomy Regulation

The EU Taxonomy Regulation enables companies to share a common definition of economic activities that can be considered environmentally sustainable. In this regulation, through application of the OECD Responsible Business Conduct Guidelines, tax is considered as one of the minimum safeguards, alongside human rights, bribery/corruption, and fair competition. Adherence to these minimum safeguards is a prerequisite for compliance with the EU Taxonomy Regulation.

For tax this means, amongst other things, that companies:

  • “Should comply with the letter and the spirit of tax laws and regulations […]” and
  • “Should treat tax governance and tax compliance as important elements of their oversight and broader risk management systems […]”

The EU Sustainable Finance technical expert group points out that “endorsement of standard GRI 207 is recommended as an indicator of an undertaking’s more ambitious understanding of tax fairness.”4 Essentially this means that adopting GRI 207 helps to comply with the tax minimum safeguard as required by the EU Taxonomy Regulation.


The SFDR is the EU’s transparency framework that sets out how financial market participants have to disclose sustainability information. Under the SFDR, tax is relevant in multiple ways, including:

  • As part of the SFDR definition of a “sustainable investment”, it is a requirement that “such investments do not significantly harm any of those [sustainability] objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance”. To this end, investee companies and investors both need to apply good tax governance. For the investor, this applies both to its own organisation and as part of the investment process.
  • As part of the investor’s policies on the integration of sustainability risks in the investment decision‐making process, tax is one of the risks to be considered during the life-cycle of the investment.
  • As part of the SFDR, the principal adverse impact indicators include: violations and lack of processes and compliance mechanisms to monitor compliance with OECD MNE Guidelines (including tax), and investments/revenues in jurisdictions on the EU list of non-co-operative jurisdictions for tax purposes.

When it comes to responsible investment, the UN PRI organization leads the way through its extensive research and the provision of practical guidance to help investors and asset managers to incorporate tax effectively into responsible investment strategies.

An increasing number of investors are now publicly stating their tax expectations for investees and using methods such as shareholder engagement and voting to emphasize responsible tax practices as essential for sustainable development and enterprise risk management. Tax transparency is a critical initial step in these dialogues. Notable recent instances include shareholder votes where investors have urged multinationals to disclose their tax approach, thereby applying GRI 207.

Deloitte Global tax policy survey5

In the context of the above it is interesting to see the following results from the 2023 Deloitte Global Tax Policy survey:

  • 40% of the respondents have an up-to-date tax transparency strategy for their groups, which has been tested with the senior leadership;
  • 75% of the respondents expect stakeholder interest in tax behaviour and outcomes of large corporates to increase over the next three years;
  • 37% of the respondents do not expect any kind of communication with stakeholders beyond standard financial reporting over the next year; and
  • 54% of the respondents expect their group to align their tax communication with a transparency standard.

We expect that these findings will change over the next two to three years, considering how tax is part of the EU sustainability regulations discussed above and with the upcoming mandatory EU public country-by-country reporting. In particular, we expect the percentage of respondents that expect to align their tax communication with a tax transparency standard to increase markedly.


In conclusion, we offer some recommendations that may prove beneficial for the ongoing advancement of sustainable tax practices:

  • Companies can request external assurance for their public tax reporting to provide comfort to their Ensure you have the right people, processes and systems to enable you to comply with your many tax obligations around the world – both now and as new obligations arise as a consequence of changes in your business and its regulatory environment. Robust tax compliance is the bedrock of tax commitments in a CSRD and wider ESG context.
  • Empower your tax team to engage with the business early in its thinking and actions to transform in line with your ESG strategy. Through appropriate access to tax incentives, reliefs and grants, you can bring much needed funding to further your sustainability goals. Further, through ensuring tax is considered in ESG‑driven M&A, supply and value chain analysis, you can anticipate and manage tax risks.
  • Establish and maintain appropriate governance and control over your key tax risks, including: oversight from an appropriate body, monitoring of key risk indicators, escalation of key tax decisions and testing of tax controls. Stakeholders want to ensure that tax decisions which could have reputational impact are owned by senior leadership.
  • In particular, develop mechanisms for the anticipation and the readiness to respond to tax “controversy”, i.e. significant disputes with tax authorities in relation to the management of your tax liabilities. A high level of controversy will have an impact on how external parties view your business from a sustainability perspective.
  • Consider your exposure to third party tax risk and build anti-tax fraud procedures into your wider business conduct frameworks and processes. As with other aspects of ESG, businesses can be damaged by poor tax behaviours in their supply chain.
  • Identify your external tax reporting obligations, including key new developments such as EU public country-by-country reporting, and assess whether your stakeholders would expect further disclosure to align with broader sustainability reporting such as CSRD and GRI207. This is an evolving and complex landscape. You need to make sure you are able to report in line with requirements and expectations.
  • As you develop your strategy for external communication on tax consider the depth of tax disclosures. You will want to include a variety of taxes, such as indirect taxes and wage taxes, as well as environmental taxes such as carbon taxes and plastic taxes, and incentives, as these forms of taxation are significant in the context of sustainable development.stakeholders. In the context of the European CSRD/ESRS, such assurance will become mandatory, making it prudent to think about your readiness for this in advance.



1 See here for a briefing pack on CSRD and ESRS


3 CSRD Delegate Act accessible at

4 See page 50 of the Report on Minimum Safeguards: