A spotlight on ESG in your sector
Read on to see what’s going on in key sectors or jump straight to your sector.
• Consumer
• Energy & natural resources
• Financial services
• Life sciences
• Industrial manufacturing & defence
• Technology, media & telecoms
The ESG agenda is bringing about rapid change for the consumer sector. Tax leaders need to be proactive in their response by understanding the risks, rewards and reporting demands facing the business.
Risks - Business changes
ESG considerations are changing customer expectations. They want sustainable, ethical products. And providing them is fast becoming a market differentiator.
All of that is seeing consumer organisations transform their business models and supply chains.
But as you transform your supply chain, you may also re-shape your organisation’s tax profile and global compliance obligations.
You’ll need to assess whether your tax governance frameworks are sufficiently robust to meet any new demands.
With only 1 in 5 tax leaders ‘very confident’ that their tax governance frameworks (covering strategy, policy, risks and controls) are robust enough to meet stakeholder demand and evolving ESG regulations*, now’s the time to make your systems and processes more agile, so it’s easier to adapt them as new regulations come into force.
Rewards – Funding opportunities
Transforming and building resilience into your supply chain and across the wider business often requires significant investment and can be hugely expensive. Your tax team is uniquely placed to identify funding opportunities from reliefs, grants and incentives for ESG initiatives. This is where you can show your value to the business over and above managing tax risk.
Reporting – Adapting to new demands
You’re facing a regulatory environment that’s getting tougher. There’s the Task Force on Climate Related Financial Disclosures (TCFD), the Corporate Sustainability Reporting Directive (CSRD), and the International Sustainability Standards Board (ISSB).
As a tax leader you need to understand the organisation’s wider sustainability reporting aims and how tax fits into this. Many ESG reporting frameworks have tax components, so consider how you will meet these new requirements. At the same time, with tax coming more under the spotlight, tax leaders should think carefully about what they want their message to be.
*Source: KPMG survey in March 2023 – of 500 UK Tax Leaders
Back to sectors
Operating in the energy and natural resource (ENR) sector, you’re facing rapid change and pressure to transform your business model to be more sustainable. That could mean embracing renewables or decarbonising existing processes to reduce pollution. It could mean embracing Power Purchase Agreements for renewable energy.
That’s all while contending with new regulation, like the EU’s Carbon Border Adjustment Mechanism (CBAM).
As a tax leader, you need to navigate the tax implications of these changes for your business. And they can be hugely complex.
You need to be proactive and collaborate with the wider business to embed tax considerations and enable them to spot risks and opportunities. In particular, you can help identify funding opportunities and where you can access the new green incentives, grants and reliefs that are being introduced worldwide.
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It’s no surprise then that tax leaders in ENR said sustainable supply chain is the top ESG priority for the tax function.
One area you should have an eye on is carbon trading. That can help organisations manage their Net Zero positions. It also opens up an opportunity as a potential revenue stream.
But carbon trading brings about a number of tax complexities. Tax leaders need to be comfortable with the technical tax content to ensure they can effectively manage the corporate tax, indirect tax and transfer pricing implications.
Financial services firms face a dual ESG challenge. They need to meet their own ESG commitments. Then, as credit providers, they have a unique role to play in influencing the ESG agendas of other companies – that includes their efforts to drive decarbonisation and build sustainable supply chains.
Of course, they can only encourage change if they’re walking the walk themselves. For you as a tax leader, that means demonstrating that your business is a responsible taxpayer.
You need to keep up to date with tax transparency requirements, which are rapidly increasing in number and complexity. There are tax-specific regulations, such as country-by-country reporting.
But there are also broader regulations, such as the Sustainable Finance Disclosure Regulation (SFDR), which are highly relevant to finance firms.
And it doesn’t end there. A growing number of companies are adopting voluntary reporting frameworks, such as the Global Reporting Initiative (GRI). While these may go broader than tax, they will require your input.
Are you up to speed with what needs to be reported under each of these regimes? Do you have access to the key data points you’ll need?
You should consider your governance framework. This may have been fit for reporting to tax authorities. But are you confident that it’s robust enough for public reporting?
Now is the time to revisit your processes and ensure they’re fit for the new reporting landscape. That also provides an opportunity to look at how tax technology can help you improve the efficiency and reliability of your reporting.
Finally, don’t forget the narrative. Provide your readers with context and collaborate with the wider business to make sure you’re aligned on the organisation’s broader sustainability messages.
As a tax leader, it is essential to be engaged with your organisation’s holistic ESG strategy.
The nature of life science products and issues around health, hygiene and decontamination have meant that many organisations have historically adopted a linear approach to their product life cycle.
But that’s now no longer the case.
ESG issues, like sustainable supply chains and waste, are moving up the agenda. Market demand along with regulatory, customer and wider stakeholder pressures mean that companies need to consider the long-term impact of their supply chains.
In response, life science companies are embracing the circular economy and reimagining what their supply chains could look like, while still maintaining industry standards.
Think through how changes to business models might put pressure on your existing tax structures and lead, in turn, to new risks and opportunities.
Collaboration with the business will be key to staying on top of these changes.
1 in 5 tax leaders in life sciences say they’re already fully embedded in their organisation’s ESG strategy*.
Take steps now to connect with project leads so that you can start to embed tax into the key ESG workstreams and governance structure. Early engagement now can maximise the potential value-add you can bring.
Tax leaders in life sciences said fair pay is a priority ESG issue in their sector*.
Your workforce is one of your most demanding stakeholders and employees are putting greater value on working for an employer with strong ESG credentials. For example, pay gap reporting, re-designing reward structures or hybrid working policies will all require tax input. Ensure that you’re closely collaborating with HR to maximise the success of these changes.
ESG in tax isn’t just about compliance. It’s the opportunity to take reporting data and turn it into something valuable that informs business decisions. It could prompt a rethink on, say, ways to make greater use of recycled plastics in your business.”
It’s no surprise you’re under pressure to make your supply chains more sustainable – industrial manufacturing and defence are carbon intensive.
You need to keep pace with evolving regulation, like the Carbon Border Adjustment Mechanism (CBAM) and the Task Force on Climate-related Disclosures (TCFD).
And then there’s the pressure from investors and buyers, and your own employees.
It’s time to act.
Defence companies that do not demonstrate the right tax behaviour run a real risk of losing government contracts. You would have to price the job better than anyone else, and that brings a whole host of other problems.
You’ll have a competitive advantage if you can supply low-carbon products.
As a tax leader, you should expect to be involved in this.
Who in our organisation is leading on supply chain sustainability?
What are the data and accounting implications?
How will the tax treatment interact with the accounting?
You should also consider the broader impact on your supply chain.
You need to be part of the wider discussions about your supply chain to make sure you’re spotting the tax risks and opportunities.
In particular, you should investigate what incentives, grants and reliefs are available across your supply chain. That can make a huge difference to the return on investment of a transformation project.
Strong governance will be key. It’s critical to the success of any claim you make for incentives. It supports your data and reporting. And it’s a key tenet of responsible behaviour.
Finally, don’t forget the ‘S’ in ESG. Consider your workforce and embed ESG into your employee value proposition. You should be part of any conversations about workforce strategy so you can help manage the risks and identify opportunities – and help ensure the compliance of any new initiatives.
Technology, media and telecoms businesses (TMT) are facing increasing pressure on their supply chains because of limited critical resources.
So how can you make sure that your supply chains are resilient and future-proof?
For many, circular business models provide a big part of the answer. They’re looking at how they can reduce waste and re-purpose existing materials and products.
Transforming a supply chain is a significant and complex undertaking – both for the wider business and for your tax team.
As a tax leader, you need to make sure your team is embedded into the key workstreams. That enables you to manage the risks and opportunities across direct and indirect taxes, as well as transfer pricing.
You’re operating in a high-profile sector where public perception can make or break your reputation. Transparency is key to building trust.
The answer isn’t to simply put more tax data into the public sphere. Communication is key. You need to be absolutely clear in your messaging and make sure you’re providing sufficient context for readers.
Finally, TMT businesses are people businesses. People are increasingly seeking to work for companies that share the same values as them.
And that means it will be increasingly important to embed ESG into your employee value proposition – whether that’s through green benefits, updated reward structures or amended working policies.
All of these potential changes will require your tax team to be on hand to advise on and manage any tax implications.
