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Are you aware of the tax transparency issues regarding ESG (environmental, social, and governance) and sustainability within life sciences companies? Is your business prepared for the challenge?

There’s a reason you should be.

Recently, there has been a dramatic cultural shift as governments and communities increase their focus on social and health issues, environmental concerns, sustainability, and corporate governance.

They want businesses to operate responsibly. This has led to more calls for ESG initiatives, where life sciences companies are expected to also measure ‘success’ as more than just profitability. It’s about what they ‘give back’ to society, e.g., to patients and communities worldwide, what they do to protect the environment, and how they conduct and govern themselves.

It’s no surprise then that ESG is now at the heart of boardroom discussions.

How well you can demonstrate your commitment, and contribution, to meeting ESG and sustainability goals, and whether you can directly deliver on the United Nation’s 17 Sustainable Development Goals (such as ‘no poverty’, ‘zero hunger’, and ‘sustainable cities and communities’), is becoming a clear measure of such success – and tax transparency is increasingly seen as both an essential element of ESG disclosure and a key metric when demonstrating your responsible attitude towards tax.


Preparing for the challenge


Becoming a more ESG-friendly organization, however, is a complex journey. It involves changing how your company processes business while being transparent and accountable – not an easy task as there is no general agreement on measures.

While every life sciences business has its own unique requirements, and most are at different stages of their tax reporting and ESG development, there are still several common questions that should be addressed:

  • Has your business committed to meeting and reporting under any ESG standards or metrics?
  • Are you adequately collecting and analyzing the right data about your ESG activities?
  • Can your technology support you?
  • Are your employees properly trained?
  • Do you have the right partnerships and alliances in place – ones that can help you create progressive approaches that drive your ESG initiatives?
  • Do you have a true idea about your company’s environmental impact?
  • Is your board aligned with what you want to achieve, and do they have access to the right information so they can provide effective oversight?
  • As investors increasingly integrate ESG factors into investment decisions, they are taking a closer look at how organizations manage their tax risk. Have you developed a tax risk policy? Do you have a tax risk appetite statement and are you adequately disclosing tax risks?

There are no easy answers to these questions. But getting them right can give you a competitive advantage.

For life sciences and chemical firms, this is especially relevant as the ongoing coronavirus pandemic, climate change, and other environmental and social/health issues keep them firmly in the spotlight. As governments, shareholders, and the public focus on your taxes, getting your tax transparency reporting right is not only essential but potentially beneficial.

Therefore, your ESG strategies should factor in tax transparency and demonstrate how you serve the communities in which you do business. Your tax planning should also align with, and support, the ESG agenda.

You should be seen to not just be ‘talking the talk’ but ‘walking the walk’. If it is felt that you are treating tax as solely a cost center that should be reduced by all means, your ESG efforts can be questioned, if not outrightly undermined.

Everyone has a vested interest in climate change, sustainability, and social justice. Tax transparency should take a central part in any conversation around these issues. This means that you should be involved in ESG and sustainability discussions. That way everyone helps, and everyone can win.

The excerpt was taken from the KPMG Thought Leadership publication:  https://home.kpmg/xx/en/home/insights/2022/03/bringing-tax-transparency-into-focus.html