Governance

Ensure you’re ready for the ESG era.

Governance

Ensure you’re ready for the ESG era.

What’s the issue?

The ESG agenda has put tax governance under the spotlight. There’s more scrutiny on it than ever, from internal and external stakeholders alike.

Without a robust tax governance framework, it will be incredibly challenging to demonstrate that your organisation is a responsible taxpayer.

But ESG also makes tax governance more complex, especially as more governments bring in new taxes to induce behavioural change. Many of the processes and data sources required to comply with these new taxes sit outside the tax function. As a tax leader, you may lack visibility or control over them.

Tackling this will require teams to be closely connected. Alignment across the business will be vital. And in this fast-moving ESG landscape, horizon scanning to keep abreast of and prepared for changes will be key.

After all, governance underpins everything you do on ESG – without this, tax leaders will struggle to evidence their wider ESG success stories.

Only 25% of tax leaders are very confident that their tax governance frameworks (i.e. strategy/policy/risk/controls) are robust enough to meet stakeholder demand and evolving ESG regulations*

_{*Source: KPMG survey in March 2023 – of 500 UK Tax Leaders}

What’s on the to-do list?

An organisation’s various business functions and country units need to come together to drive good tax governance – and tax leaders can make that co-operation happen. That’s why 83% of tax leaders are now evolving their governance framework, or plan to do so in the next two years*.
To make governance fit for purpose in today’s, and the future, ESG landscape, you should put the following at the top of your governance to-do list:

^1.^{Know your risks}

ESG is transforming businesses – and their risk profiles. Understand what new risks face the tax function across strategy, operations and compliance.

Only then can you design and implement a governance framework that is fit-for-purpose.

^2.^{Break it down}

Don’t be daunted by tax governance. It’s a massive field: starting small is a good way to get a grip on it.

Begin by aligning one area of tax with your organisation’s ESG strategy – ideally one you’re already fairly familiar with. Then build out your governance framework from there.

Similarly, don’t reinvent the wheel. Consider what existing processes and controls can be adapted.

³^{. Sell the benefits}

Tax governance isn’t just a compliance exercise, demanded by tax authorities. Getting it right will make many aspects of your tax and finance operations more effective.

Plus, strong tax governance informs robust decision-making, giving the board reassurance that they’re making the right calls when it comes to your tax strategy.

^4.^{Communicate responsibilities}

The tax function’s remit is ever-expanding. Revisit your RACI to ensure all of your obligations are covered in light of recent and upcoming regulatory changes.

Similarly, with increased interconnectivity between functions, ensure your processes are well-documented and capture key inputs from other teams.

^5.^{Look to the future}

Governance isn’t static. With new ESG-related tax regulations rapidly coming down the line, getting comfortable with what the future holds will help you start preparing today.

At the same time, with the regulatory landscape constantly evolving, consider how to build flexibility into your governance framework. Creating an agile system now can save you time and effort as new legislation is introduced.