As sustainability becomes an increasingly important aspect of business, tax leaders have a unique opportunity to contribute to their organizations’ sustainable future and create value. By understanding the evolving landscape of sustainability and its intersection with tax, finance functions can effectively support the business while considering the tax consequences of sustainability-related changes. This article explores the inseparable relationship between tax and sustainability, highlighting the ways tax leaders can play a pivotal role in driving sustainability efforts.
Tax and Sustainability: A Symbiotic Relationship:
A comprehensive sustainability agenda brings about profound changes to a business and its operating model. In this context, the tax function plays a crucial role in supporting the business by providing transparent compliance and reporting, which contributes to conveying the company’s sustainability story. Furthermore, tax leaders are instrumental in facilitating value-driven decisions regarding sustainability-related tax incentives, savings opportunities, and credits. They also guide businesses in understanding the tax implications of sustainability-related transformations within supply chains, business models, and organizational structures.
Leveraging Tax Expertise for Sustainability:
Within multinational organizations, tax functions are at the forefront of identifying and explaining the implications of sustainability-related processes and technologies. They play a vital role in optimizing value by ensuring that research and development (R&D) and technical teams are structured in a way that unlocks available grants and incentives. By embracing the potential of the tax function, business leaders recognize the interdependency of corporate sustainability and tax, and more organizations are integrating tax into their overall sustainability strategy.
Maximizing Value through Proactive Involvement:
While progress is being made in integrating tax into sustainability strategies, there is still room for improvement. In many cases, tax departments are brought in reactively, hindering their ability to deliver real value. However, prioritizing the sustainability agenda presents tax leaders with a distinct opportunity to contribute significantly to the organization. As business decision-makers recognize the critical role of tax in the success of the corporate sustainability strategy, tax leaders can showcase their credentials and capabilities as true business partners and value drivers.
Governance as a Catalyst for Tax’s Momentum:
Governance plays a pivotal role in driving tax’s contribution to environmental, social, and governance (ESG) momentum. With tax transparency issues gaining global attention, corporations are under scrutiny from investors and consumers regarding their roles and responsibilities in society. Organizations have made more progress in governance compared to the environmental and social aspects of sustainability. By actively participating in governance, the tax function can align itself with three key corporate priorities: tax and regulatory compliance, broader risk management and ethics practices, and improving sustainability metrics and reporting.
Delivering on the Sustainability Opportunity:
To maximize their contribution to sustainability efforts, tax leaders should consider several key actions:
- Identify areas where tax can add value: Understanding the unique intersection points between tax and sustainability at both the strategic and operational levels is crucial for finance and tax leaders.
- Elevate governance: The tax function should go beyond compliance and reporting and actively facilitate transparent disclosure and reporting around sustainability, addressing the specific needs of institutional investors.
- Reconsider the operating model: Emerging operating models for tax enable functions to outsource routine compliance and reporting activities while focusing on partnering with the business. Engaging professional services advisers can help build strategic capacity and enhance the value proposition to the business.
Tax and sustainability are now intrinsically linked, and tax leaders have a vital role to play in driving the sustainability agenda. By collaborating closely with CFOs and finance executives, tax leaders can ensure their early involvement in sustainability strategy conversations, positioning themselves as integral and valuable contributors to their companies’ success. Embracing the opportunities that arise from this integration, tax leaders can truly make a difference in their organizations’ sustainability efforts.