Execution
As you roll out your ESG strategy, maximising tax reliefs will be critical.
For example, there are R&D tax credits on offer for innovation in waste reduction, sustainable materials and eco-friendly product designs. The savings generated from these can be reinvested into your sustainability initiatives, creating a virtuous cycle of innovation and improvement.
Your strategy might also require the use of power purchase agreements, or internal carbon-pricing policies and mechanisms. These can have complex tax implications that will need to be managed.
Tax is typically seen as a cost. But available tax reliefs can add value, allowing the firm to ‘green’ more of its operations, faster.
Governance
Effective governance is critical to the success of a sustainability strategy – and tax governance is an important part of that.
This is reflected in some of the new mandatory sustainability reporting frameworks – such as CSRD – which can have specific tax-governance requirements.
Sustainability and tax teams will need to work closely on this. Establishing clarity of roles, responsibilities and accountability for tax-related sustainability issues will be vital. For example, ‘pseudo’ taxes like the EU’s CBAM scheme will likely require input from both departments.
Tax governance will also be crucial to your firm’s ability to take advantage of ‘green’ tax incentives globally, where qualifying conditions are met. That will mean keeping track of what’s available, and compiling the necessary documentation on your sustainable practices.
Engagement
Engaging and aligning your stakeholders with your sustainability strategy will be critical.
At its heart, tax is a sustainability issue – the tax your business pays is central to how it contributes to society. A clear, authentic narrative about your approach to tax can enhance stakeholder trust. Communicating a positive tax strategy will bolster your company’s reputation as a responsible taxpayer, by demonstrating its financial contribution to the communities in which it operates.
At the same time, explaining how tax supports your ESG efforts could appeal to sustainability focused stakeholders.
All of which can improve the company’s brand, and drive consumer and investor engagement – which will be crucial to the long-term success of your sustainability initiatives.
