Consumer businesses are under growing pressure to improve their ESG transparency.
According to KPMG’s 2022 CEO survey, 72% of Consumer and Retail bosses say their stakeholders want greater visibility of their ESG efforts.
For tax leaders, ESG is first and foremost a data issue. That can be problematic for consumer organisations, which are typically awash with data. Their heavy transaction flows, and the sheer number of returns they handle, generate vast amounts of information.
The three Rs
Accurately capturing, processing and mining that quantity of data for ESG purposes is a big task. But not getting it right will lead to shortcomings on three crucial fronts.
These are the three pillars of ESG from a tax perspective – or what we might call the ‘three Rs’: risk, reward and reporting.
- Risk
Governments around the world are introducing regulation to drive responsible environmental and social behaviours among organisations.
Many of these have tax implications – plastic packaging taxes being a common example. Tax functions in multinational firms must determine which of these measures apply to their company, in which jurisdictions.
That means having access to the necessary data, and the resource and capability to analyse it. Tax leaders must take ownership of this. Without it, you risk miscalculating and misreporting your tax liability, underpaying tax, and having penalties imposed as a result.
- Reward
As well as tax penalties, many jurisdictions are bringing in incentives, reliefs and grants, to encourage investment in environmentally friendly technologies and practices.
Tax teams need to be on top of these. Your board will expect you to identify, and claim, all of the incentives the business is eligible for.
Horizon-scanning will enable you track what’s coming in, where and when. And again, having the right data to hand will be essential.
- Reporting
Businesses face a mounting ESG compliance burden. They’re increasingly obliged to report on their ESG strategies, initiatives and risks, with the requirements varying from country to country.
It’s a landscape that’s constantly evolving – and ‘moving down the scale’ as smaller organisations come into scope.
ESG reporting requires data from right across the business and its supply chain – much of what’s needed won’t sit within the tax function. So, it’s vital that the tax team plays a central role in its firm’s reporting activity. Yet KPMG discovered that a large proportion of clients we are talking to don’t have an ESG policy that includes tax.
Getting started
There’s no one-size-fits all approach to getting control of your ESG data for tax purposes. Every consumer business will have different internal structures to navigate; different tax systems and processes to contend with; and therefore different challenges to address.
So how can you find the model that will work best for your organisation? I’d suggest getting started with two essential collaborative exercises:
- A stakeholder roundtable
Your first step should be to bring your firm’s ESG stakeholder ecosystem together for a strategic meeting, in order to determine the way forward.
Who to involve will depend on your organisational structure – but it should certainly include your CEO, and your heads of tax and sustainability. Other likely candidates will be the chief risk officer, and potentially your internal legal counsel. - An ESG tax strategy workshop
These can take several forms. It may be a straightforward, two-hour discovery session, to see where tax can add value to the firm’s ESG ambitions; all the way up to a two-day innovation centre, specifically designed to accelerate your ESG tax strategy.
Whatever the format, it should be run by external facilitators, with deep expertise in tax, data, ESG regulation and consumer industries.
Find out more
The KPMG team has designed and run ESG tax strategy workshops for many global consumer businesses.
We’ll work with your tax team to engage your stakeholders, gather the relevant information, and plan and facilitate your session. We’ll distil the outputs into key workstreams and actions, then follow up further down the line to ensure the desired results are being achieved.
Please get in touch to determine how we can help you set the ESG strategy around capturing the risks, maximising the rewards and adhering to global reporting obligations.
