Tax is a crucial part of the ESG conversation


William Morris

Global Tax Policy Leader, PwC United States


Edwin Visser

Deputy Global Tax Policy Leader, EMEA Tax Policy Leader, PwC Netherlands

+31 88 792 3611


Looking at tax reporting through an ESG lens can help businesses build trust and demonstrate their commitment to sustainability and social responsibility.

A company’s approach to tax is no longer just a question of compliance. In the context of the environmental, social, and governance (ESG) imperative, it is becoming a powerful indicator of how a business views its role in society and its commitment to its purpose. It’s a critical element of a business’s social contribution—part of the “S” in ESG.

There are significant upsides to getting this narrative right. Looking at tax reporting through an ESG lens has the potential to tell a more holistic and relevant story about a business’s purpose, thereby building trust. And unlike, say, a commitment to net-zero emissions, which might take years to document and achieve, a company’s tax “footprint”—how much taxes are paid, and to whom—is something stakeholders are increasingly asking a company to report on today. As a result, we are increasingly seeing investors looking at how businesses manage their tax affairs as an early indicator of how they might manage other aspects of the ESG agenda.

Building trust in tax reporting, therefore, has the potential to translate to building trust in other areas. And ESG reporting presents a new opportunity to reframe tax reporting as a positive for business, and no longer something to be feared. It’s part of a larger movement to better align businesses with the societies in which they operate and the citizens whom they serve. 

It wasn’t so long ago that tax disclosures were aimed at investors and centered primarily on the effective rate of corporate income tax. That’s changed because the context has changed. Today, tax disclosures increasingly need to speak to a wider audience, including customers and employees, and can cover topics such as strategy and governance as well as numbers. It’s a complex topic, and businesses should not underestimate the time it can take to gather and analyze the tax data and then explain that data in a way that builds trust and is meaningful for their investors and wider stakeholders.

There are three ways an ESG reporting lens can enhance transparency and affect how tax disclosures are viewed. First, it increases the scope of reporting to non-financial, material factors such as carbon emissions and workplace racial and gender diversity, which themselves have tax implications. Second, it emphasizes the link between governance and transparency, which is the foundation of trust. And third, an ESG-based approach to tax reporting is about more than publishing data; it’s about having a tax strategy, and a narrative surrounding that strategy, that are aligned with the company’s overall values.

The nature of ESG reporting—especially as the disclosures become more codified and standardized—also allows more rigorous comparisons of corporate performance across a far wider range of criteria. This, in turn, gives stakeholders greater scope to draw inferences not just about a business’s financial performance, but about its sense of purpose and social responsibility. ESG reporting also helps companies know where they stand in relation to their peers and competitors.

Turning up the pressure

Pressure on businesses—from governments, investors, regulators, the media, civil society, and the public—to disclose more about the taxes they pay has been building for years. This is particularly true for multinational companies. In 2015, the Organisation for Economic Co-operation and Development (OECD) and G20 countries formally adopted a form of country-by-country reporting (CbCR) as part of the OECD’s base erosion and profit shifting (BEPS) initiative, the multinational project to address gaps and mismatches between different countries’ tax systems (see timeline). The reporting covered by those efforts is to tax authorities, not the public, but CbCR has since become an established concept in the efforts to increase transparency more broadly in the international tax system. A new EU directive that came into effect in December 2021 makes a form of public country-by-country reporting for many businesses operating in the EU mandatory. It is unlikely to be the last regulation to require more tax transparency.

Frameworks for ESG reporting also continue to be developed by standard setters and regulators. The EU’s “green taxonomy,” for example, is a classification system designed to provide clarity for investors seeking to gauge the environmental sustainability of various economic activities. A draft report on a similarly structured “social taxonomy,” published by the EU in July 2021, suggests that a future classification system will contain metrics on tax transparency and non-aggressive tax planning. The SEC, too, is evaluating reporting requirements. The trickle that started nearly two decades ago (see timeline) has now become a flood.

Extractive Industries Transparency Initiative (EITI) announces voluntary transparency effort for the extractive sector

US enacts Dodd-Frank Act, which requires extractive industries to publicly report all payments made to governments

EU Accounting Directive requires reporting of payments to the government from extractive sector

EU introduces Capital Requirement Directive IV, a transparency initiative for banks and capital markets

OECD introduces BEPS to stop MNCs from exploiting mismatches among different countries' tax systems and provide certain CbCR to tax authorities

Australian government introduces a set of principles and minimum standards for public disclosure of tax information

The UK's HM Revenue and Customs announces requirements for UK businesses to publish a tax strategy

The nonprofit B Team, made up of global business and civil society leaders, generates a set of tax principles

The Global Reporting Initiative develops a new standard on tax which includes form of public CbCR

WEF's International Business Council releases a set of “stakeholder capitalism” metrics, including reporting of taxes paid as a core metric and taxes collected and paid as a recommended metric.

EU agrees to new public CbCR requirements for large EU businesses, which is expected to go into effect by 2024

EU proposals expected for large MNCs to publish their effective tax rates, as determined for global minimum tax purposes

ESG reporting, including tax, is becoming less optional

Although non-financial ESG reporting is voluntary, many businesses are preparing for a future in which it becomes a legal requirement. More than 10,000 organizations in 100 countries are using the Global Reporting Initiative (GRI) standards, which include reporting on tax. Some 120 companies are members of the World Economic Forum’s International Business Council, which made tax disclosures a core component of its ESG reporting metrics, published by the WEF in 2020. 

Given the range of perspectives and the growing number of voluntary and mandatory reporting frameworks, how can businesses best respond? Some of the early adopters may provide inspiration. Mining company Anglo-American, for example, has been publishing its Tax and Economic Contribution Report for seven years, not just to tell its own story but also to provide information that can help the public hold their government to account. Similarly, telecoms carrier Vodafone started releasing details of all its tax affairs, country by country, in June 2013.

More companies are opting to focus their reporting—as the International Business Council recommends—on total tax contribution across all areas of taxation and tax incentives. This can include income and social security taxes as well as carbon taxes and investment tax breaks. PwC UK’s annual tax transparency report, published in June 2021, found that 47 companies in the FTSE 100 made total-tax contribution disclosures in 2020, up from 34 in 2018. This increase reflects a growing desire to move the conversation beyond corporate income tax.

Responding to stakeholders’ tax questions is not a walk in the park

Collecting data on all the taxes paid by a complex multinational group has always been a challenge. For now, robust disclosure, while growing rapidly, remains the exception. It’s important to say upfront that there is no one-size-fits-all approach, and, depending on geography, sector, and other factors, different businesses will come to different conclusions at different times about how much and what information should be disclosed to build trust.

Tax is complicated, easily misunderstood, and, at times, overwhelming. In addition to the main taxes on profits, income, consumption, and property, there are already more than 1,000 environmental taxes across the OECD member countries alone, according to a PwC analysis of the OECD’s Policy Instruments for the Environment database, and the list is changing all the time.

Understanding the implications of all this on a global scale is complex. This is why a narrative that explains the concepts behind a business’s tax strategy is so important, especially given the likelihood of future tax incentives for environmentally sustainable growth. For example, if a company’s investment in new, environmentally friendly technology allows it to claim a tax incentive and thereby reduce its tax bill, that company, in the absence of a strong narrative, may be accused of tax avoidance rather than recognized for its proactive investing. 

Four imperatives for an ESG-driven future

To ensure that reporting is genuinely informative, businesses will need to determine what information, qualitative as well as quantitative, is most relevant to its stakeholders. Gathering, verifying, and understanding this information, and then deciding which parts to include in disclosures, takes time and effort, but businesses that fail to start this process early enough will find themselves at a disadvantage when it comes time to answer key questions from investors and customers. Businesses seeking to build a narrative connecting tax practices to values and strategies, while also demonstrating to stakeholders a commitment to ESG imperatives, should consider the following:

1. Understand your own facts: Boards, management leadership teams, and heads of tax need to understand their company’s tax position not just from a shareholder’s point of view, which focuses on consolidated financial statements, but also from the perspective of investors with a focus on ESG, as well as that of employees, civil society, and national tax authorities. This requires a commitment of time and resources because, as noted above, taxes are complicated and changing all the time.

2. Collaborate and consult: Tax departments need to engage across the entire business to align tax strategy with broader corporate strategy. The ESG revolution will change how businesses operate in all sectors, leading to changes in where businesses operate, in their supply chains, and in their acquisitions and disposals. Almost every business decision has a tax impact, and those impacts will take on increased visibility in the more extensive tax disclosures that are likely to figure more prominently in ESG reporting. Considering tax impacts early will help companies understand and develop the tax narrative that accompanies such longer-term transformations.

3. Communicate clearly: Tax disclosures are often read by people who are not steeped in the complexities of tax and compliance, so taking the time to develop and communicate a tax narrative can prevent misunderstandings. Doing so also builds trust. It’s essential to consider how your company looks when its tax decisions are viewed through ESG and stakeholder lenses.

4. Set benchmarks and look ahead: Business leaders should think about how they compare over time to their peers and factor that into how they develop their tax reporting. Only a few businesses will want to be the leaders in tax reporting, but even fewer will want to be left behind. Leaders also must pay attention to the changing views of stakeholders and to new metrics and reporting requirements—for example, the inclusion of tax in rating agencies’ ESG scores and the EU’s Corporate Social Responsibility Directive

A considered approach to tax transparency and tax governance, and what they say about leadership, have an important role to play as businesses look to engage with ESG issues, build trust, and realign with their wider stakeholders. That’s why it’s important to articulate a company’s tax strategy in the clearest possible way.


Will Morris is PwC’s deputy global tax policy leader. He has worked at the US Treasury and in industry, and is now an advisor. He also holds leadership positions at Business at OECD (BIAC) and American Chamber of Commerce to the European Union.

Edwin Visser is PwC’s EMEA tax policy leader and has extensive experience in international tax policy, having worked for the Dutch government and with businesses. Based in Amsterdam, he is a partner with PwC Netherlands.

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