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Tax and ESG

Viewing tax through a new lens to deliver sustainable outcomes

Tax reflects a business’s contribution—sometimes its largest one—to society. It is also a value driver in delivering on the business’s environmental, social and governance (ESG) goals. Together, these traits put tax considerations at the heart of any business’s ESG transformation.

Governments around the world are shaping national net-zero strategies, and broader plans for a sustainable society. Increasingly, their focus is on policy levers such as incentives for low-carbon technologies and upskilling employees. On the other side of the equation, they use taxes to encourage emissions reductions and development of a circular economy. In response, business leaders are reviewing how their tax strategies might need to adapt to support a transformation in operations, investment outlook and employment practices.  

Pressure for change is also coming from investors and consumers, who expect businesses to embrace sustainability and increase tax transparency. New legislation and regulation will keep elevating the importance of building a clear plan to manage tax reporting and transparency in a way that builds trust with key stakeholders.

All of these changes mean that, increasingly, companies today are viewing their tax strategy through an ESG lens. This means considering tax implications for every part of the business, from finance to supply chains to employment and more.

Green Taxes and Incentives Tracker

Many organisations are at an early stage in thinking about how green taxes and incentives impact net zero and climate targets. Currently, many do not have clear visibility of the costs of complying with green taxes or of the potential benefits of green incentives. Our Green Taxes and Incentives Tracker is a starting point to help provide insight so you can factor the impact of green taxes and incentives into your overall corporate climate and business strategies.

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PwC Green Taxes and Incentives Tracker

Many organisations are at an early stage in thinking about how green taxes and incentives impact net zero and climate targets. PwC's Green Taxes and Incentives Tracker is a starting point to help provide insight so you can factor the impact of green taxes and incentives into your overall corporate climate and business

Navigating the complexities of a changing world

Climate

Confronting climate change effectively—and quickly—will require new business models and new investment priorities. Businesses must be ready to comply with new climate-related regulations and reporting requirements, and to meet the rising expectations of investors and consumers. These changes have potentially significant tax implications that will cut across all lines of business. PwC’s global capabilities in tax, reporting and governance will help you navigate these challenges successfully.

  • Net-zero transformation: Achieving net-zero goals will require changes across your business, and these changes can be affected by international tax and trade rules. Tax issues can also arise when making the transition to green and renewable energy, or when reorganising corporate structures for sustainability and climate action. We help evaluate the tax implications of a net-zero commitment, including providing advice and impact assessment on existing and emerging green taxes across your international supply chains.
  • Greening of the tax system: As governments consider new strategies to address climate change, they are evaluating new taxes and tax incentives while redesigning existing ones. In response, businesses need to reevaluate their operating models and processes. All of this can lead to critical decision issues on everything from value and supply chains to new data and finance system requirements. We help organisations evaluate changes in the tax policy landscape, and shape their response in a way that delivers sustainable business outcomes.

Transparency, Reporting and Governance

As society’s understanding of the ESG context deepens, businesses are making bold commitments to change. Investors are seeking to manage evolving risks and finance new solutions. And stakeholders want to be confident that the businesses they deal with are responsible and profitable. Changes in reporting  can include local requirements for workforce assurance, national standards for carbon reporting or international trade regulations. All of these can have tax implications.

We work with organisations to build stakeholder confidence and to make reporting robust, credible and transparent.

  • Standard setting and policy: A number of mechanisms spell out how businesses can model climate risks and opportunities, establish road maps to net zero and demonstrate their commitment to sustainability. They include the Task Force on Climate-related Financial Disclosures (TCFD); the Sustainability Accounting Standards Board (SASB); the Global Reporting Initiative (GRI); and the International Sustainability Standards Board (ISSB), which was announced at the COP26 conference.
  • Reporting and governance: ESG reporting—covering everything from carbon emissions to workplace diversity to board governance—is fast becoming a business imperative. Effective reporting provides an important indicator of your business’s overall health, and it requires collaboration and insight across the business. All of this will affect tax function design, transparency, risk and control management.

Deals / Responsible Investment

Stakeholders today expect businesses to do more than generate returns here and now; they want businesses to create sustainable value for the future. By encouraging businesses to take a longer-term view of their markets, business strategies, investments and assets, ESG provides a real opportunity to invest in the future. Whatever kind of deal you’re considering, we can help you identify tax risks and opportunities, advise on negotiating strategies and enable you to create a tax approach that builds sustainable value.

Managing the ESG implications of deals and investments can involve:

  • restructuring finance to consider investor and shareholder ESG requirements, which enables businesses to make decisions with sustainable and green finance and investment in mind
  • adapting buy-side and seller-side due diligence and systems to climate and workforce needs
  • considering carbon credits, including those based on a nature-based solution (NBS) or renewable energy
  • designing workforce rewards and aligning executive compensation to shareholder objectives
  • shaping policy around carbon and environmental taxes to meet buyer/seller requirements
  • modelling tax considerations to meet the needs of a specific deal environment.

People aspects of ESG

ESG considerations touch many aspects of the people and workforce strategy, including human rights, diversity and inclusion, and incentives and rewards, particularly at the executive level. The COVID-19 pandemic, for example, highlighted many existing workforce challenges such as inequity. It also raised the profile of new models of working—such as home-based and hybrid working—that can contribute to a business’s net-zero goals. To continue transforming the workforce for a more sustainable future, businesses will need to reexamine their employment policies, training programs, reward and recognition programs and much more. Our global team of professionals with expertise across every aspect of human capital issues can help.

Areas where organisations might need to examine the implications of a breadth of people policies through an ESG lens include:

  • workforce strategy
  • society and community impacts
  • pensions savings and investment policies
  • approach to employee reward, including executive remuneration, broader incentives and equal pay to create alignment of incentives to ESG goals
  • workforce supply chains, including international human rights
  • programmes promoting equality, diversity and inclusion
  • alignment of workforce incentives to ESG goals.

Contact us

Barry Murphy

Barry Murphy

ESG Leader, Global Tax and Legal Services, PwC United Kingdom

Tel: +44 (0)771 5546419

Will Morris

Will Morris

Deputy Global Tax Policy Leader, PwC United States

Tel: +1 202 213 2372

Niloufar Molavi

Niloufar Molavi

Partner, Tax & Legal Services, PwC United States

Chris Woo

Chris Woo

Partner, Tax & Legal Services, PwC Singapore

Tel: +65 9118 0811

Phillippa O’Connor

Phillippa O’Connor

Workforce ESG Leader, PwC United Kingdom

Tel: +44 (0)7740 9685 97

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