• François Marlier, Manager |

As more companies report on their tax affairs, and as their reporting matures, expectations grow too. While in the Nordics, we see already high compliance with the first section of GRI 207, namely 207-1 Approach to Tax, scores are lower for GRI 207-2 and GRI 207-3. In our previous blog, my colleague Simon Tornø Olesen tackled GRI 207-2 (Tax Governance, control, and risk management), and provided insights into how these disclosures can be improved. In this blog, I would like to consider GRI 207-3: Stakeholder engagement and management of concerns related to tax.

Whether or not companies identify tax as a material topic under the EU Corporate Sustainability Reporting Directive (“CSRD”), stakeholder expectations and regulatory initiatives such as public country-by-country reporting directive continue to drive a growth in transparent tax reporting. The Global Reporting Initiative sustainability reporting standards remain the most widely used standards around the world, and as we have shown in our Nordics tax transparency reports (2022 & 2023) – and as our colleagues have shown similarly in the Benelux –  GRI 207[1] is the leading standard for tax reporting.

First published in 2019 and effective since 2021, GRI 207 sets out detailed disclosure requirements for both the “quantitative” and the “qualitative” part of tax reporting. Companies that claim to report in accordance with the GRI sustainability reporting framework are expected to follow GRI 207 for their tax reporting if they identify tax as a material topic (which, arguably, virtually all MNEs should) – but even for companies that do not formally use the GRI standards, they are a great source of inspiration.

There are three disclosure requirements in GRI 207-3:

The reporting organization shall report the following information:

a. A description of the approach to stakeholder engagement and management of stakeholder concerns related to tax, including:

i. The approach to engagement with tax authorities;

ii. The approach to public policy advocacy on tax;

iii. The processes for collecting and considering the views and concerns of stakeholders, including external stakeholders.

The approach to engagement with tax authorities

The first disclosure requirement on the engagement with tax authorities, tends to be well covered, and in increasingly more company-specific detail. Many companies now include in their public tax policy that they do not only commit to engaging constructively and in good faith with tax authorities, but also explain how they manage disagreements and disputes; their willingness to defend their position in court; whether their strategy is to enter into cooperative compliance relationships (i.e. tax governance in Denmark); etc.

In the reporting part, we have also seen some companies reporting on the disputes or ongoing audits in their reporting year. The trend on this disclosure is therefore positive – and we encourage companies to be specific about their approach, rather than relying only on broad statements of compliance.

The approach to public policy advocacy on tax

This second disclosure under GRI207-3 is probably one of the least well covered by companies reporting on their tax affairs. And yet, it is arguably an essential disclosure to demonstrate commitments communicated by companies are actually a true reflection of their position, embedded in the public affairs and regulatory relationships departments, and integrated in their lobbying efforts.

When this disclosure is addressed at all, we most often find statements limited to declaring support for the development of efficient tax regulations, sometimes with specific reference to double tax treaties. Some companies also disclose their membership in industry bodies and might also disclose their role on certain committees in these trade bodies. In the most advanced cases, references to actual legal initiatives and consultations they might have contributed to may be disclosed.

What is lacking is more specific examples of positions taken, and how those positions were lobbied on. The lack of specifics has already led some companies to having to explain and defend their actions once their actual lobbying efforts are investigated or made public, as they appeared to be in contradiction with media releases, public statements, or what could reasonably be expected from their tax policy.

A related issue is the positions taken by industry or trade bodies of which companies may be members, and who lobbies in the name of a larger group of companies. While very useful to concentrate efforts and leverage insights from a wider group of companies, such bodies may also defend a position or lobby in a direction that goes against the stated values and other communicated positions of individual companies.

From issues such as Pillar 2, tax transparency, but also taxes and incentive programmes, many of today’s major legislative initiatives relate one way or the other to tax, and companies must ensure that their lobbying is aligned with their public tax policy, and wider corporate sustainability strategy, values, and broader commitments.

How does this relate to CSRD?

The only published ESRS under Governance is G1 – Business Conduct. One of its focuses is on political influence and lobbying activities (disclosure requirement G-15) and requires companies to 27. “provide information on the activities and commitments related to exerting their political influence, including lobbying activities related to their material impacts, risks and opportunities. […]

29. This disclosure shall include:

(a) if applicable, the representative(s) responsible in the administrative, management, and supervisory bodies for the oversight of these activities.

(b) for financial or in-kind political contributions:

i. the total monetary value of financial and in-kind political contributions made directly and indirectly by the undertaking aggregated by country or geographical area where relevant, as well as type of recipient/beneficiary; and

 ii. where appropriate, how the monetary value of in-kind contributions is estimated.

(c) the main topics covered by its lobbying activities and the undertaking’s main positions on these in brief. This shall include explanations on how this interacts with its material impacts, risks and opportunities identified in its materiality assessment per ESRS 2; and

(d) if the undertaking is registered in the EU Transparency Register or in an equivalent transparency register in a Member State, the name of any such register and its identification number in the register.

30. The disclosure shall also include information about the appointment of any members of the administrative, management and supervisory bodies who held a comparable position in public administration (including regulators) in the 2 years preceding such appointment in the current reporting period.”

As stated above, many companies are known or likely to have lobbied one way or the other on many of the recent tax-related regulatory initiatives (carbon taxes, carbon border adjustment mechanisms and emissions trading systems, Pillar 1 and Pillar 2, country-by-country reporting, various tax credits and incentives), because of the potential impacts, risks, and opportunities those may bring. In the future, to comply with CSRD reporting obligations, such efforts should be disclosed.

The process for collecting and considering the views and concerns of stakeholders, including external stakeholders

This third disclosure under GRI 207-3 requires companies to describe this process specifically with regards to concerns related to tax – whether it is integrated in the wider stakeholder engagement process, or whether there is a separate process, or a mix of both.

To date, few companies are reporting on this requirement, and when they are, they tend to focus on their shareholders. Some companies have, at times, disclosed that their decision to increase their transparency was borne out of conversations with investors and shareholders, while others have reported on shareholder proposals put forward by investors with regards to tax transparency reporting.

Less has been disclosed about actual processes and other types of stakeholders.

How does this relate to CSRD?

One of the first steps for all CSRD reporting companies is the identification of material topics, a process which should require to engage with stakeholders to understand what they see as material topics too. Stakeholders typically include not only shareholders, but employees, business partners, customers and consumers, affected communities, and possibly supervisory authorities, relevant NGOs, academics, and society at large.

The actual individuals that companies need to engage with to collect the views and concerns of stakeholders on their tax affairs may differ from other ESG-related stakeholder engagement processes. Companies who do not have such a process in place for tax may integrate it into an existing stakeholder engagement process, the CSRD stakeholder engagement process, or at least leverage those processes and tailor them for their own purposes.

Guidance for how to engage with stakeholders can be found in GRI 3 Material Topic[1]: a useful insight is that collecting views and concerns does not necessarily mean engaging with individuals on a 1-2-1 basis where impractical. For instance, publications and activism by relevant NGOs, academic papers, and the legislative process can provide a lot of insights into what communities and wider society consider material.

The takeaway

To sum up, I believe that the two disclosure requirements under GRI 207-3 that so few companies report on can be attributed to two [SD1] issues, not mutually exclusive:

  • Certain aspects of the management of tax affairs and tax reporting are not being integrated in established sustainability reporting processes, or are not leveraging such processes. This is likely particularly true for GRI 207-3-a-iii; many companies have implemented processes to collect and consider the views of stakeholders on their ESG risks and sustainability impacts, but tend not to cover tax in these processes.
  • Lack of coordination between the public/regulatory affairs functions and the sustainability and tax (and other relevant) functions.

This second aspect carries particular risks, as it can lead to discrepancies between what companies claim to support and be committed to, and what they actually lobby for, which in turn can lead to accusations of hypocrisy. Considering that tax disclosures are in part required to rebuild trust between large MNEs and society at large, it is essential for companies to get this right, and transparently and consistently explain to the public what initiatives and regulations they do actually support, and how.

Finally, whether or not companies identify tax as a material topic under CSRD and use GRI 207 to report on their tax affairs, these aspects will likely need to be reported on as part of the stakeholder engagement process, and as part of the ESRS G-1 Business Conduct.


1. GRI 207:TAX 2019, Global Reporting Initiative, https://www.globalreporting.org/standards/standards-development/topic-standard-for-tax/
2. GRI 3 Material topics 2021, Global Reporting Initiative: https://globalreporting.org/pdf.ashx?id=12453&page=19