Taxes, ESG are potential wake-up calls to go green

This article was contributed to and first published in The Business Times on 11 February 2021. 

COVID-19 is a stark reminder of our fragility and amid this ongoing crisis, it has forced us to consider the Earth's vulnerability too. The way this unseen pathogen has impacted life on the planet raises questions about other impending risks, and one of the biggest ones is climate risk.

Hence, we hope 2021 will be the year when environmental, social and governance (ESG) factors take centre stage. The figures are already promising, with a record number of companies disclosing ESG data. But with such a big global task ahead, the job will never be done until all companies and their stakeholders promote the resilience of the environment.

While ESG issues have come into the spotlight, the topic of taxes has so far remained largely absent from the ESG conversation. For many, the link between taxes and ESG may not be obvious, but in actuality, taxes are a very basic and comprehensive measure of how much a company contributes to the economy.

In fact, the World Economic Forum - with the help of the Big Four accounting firms - has published a universal set of metrics to align mainstream reporting with ESG indicators.

Having a common set of metrics to measure ESG progress is key, as without one there can be no comparability nor accountability. These metrics provide a balanced gauge that can serve to compare companies from varying countries and sectors, including in the area of tax contribution reporting.

Taxes are a company's endowment to society, and voluntary tax transparency can be a demonstration of a company's commitment to operate for the benefit of their communities, not just for stakeholder returns. Hence, there should be greater encouragement for voluntary tax transparency.

Examples of voluntary tax transparency that could help in ESG implementation include publishing tax strategies, as well as sharing information on tax governance, risk management and tax contribution figures.

SUSTAINABLE TAX PLANNING

With ESG factors gaining more ground since Covid-19, companies need to start planning sustainable tax strategies. At the end of the day, the most environmentally sustainable form of tax planning is to not have to pay carbon taxes at all.

One way to do that is for businesses to transform their operations to reduce manufacturing pollution - for example, to reconfigure supply chains to be closer to one's customer base and cut transport emissions.

Tax planning can also involve exploring the availability of tax incentives and grants to build more sustainable business practices, such as committing to and meeting targets to achieve net zero greenhouse gas emissions.

For our part, PwC in Singapore has been challenging ourselves to reduce our carbon emissions per full-time employee, and to voluntarily purchase carbon credits to offset the firm's carbon footprint.

Meanwhile,the network has made a worldwide commitment to achieve net-zero greenhouse gas emissions by 2030.

Singapore's government is also taking the lead in promoting ESG with the Singapore Green Plan 2030 that will be a multi-ministry effort with "ambitious and concrete targets", said Minister for Sustainability and the Environment Grace Fu. The plan was unveiled on Wednesday.

Deputy Prime Minister Heng Swee Keat, who is also Coordinating Minister for Economic Policies and Minister for Finance, underlined the country's commitment to addressing climate change and sustainability during Budget 2020.

EMBED ESG IN CORPORATE CULTURE

Initiatives such as phasing out non-electric cars by 2040 and making sure new housing developments have around 45 to 60 per cent green cover, show that the government means business. And it will be interesting to see how Singapore's upcoming Budget 2021 will further define the country's ESG ambitions.

ESG factors are now key investment considerations for many institutional investors. Listed companies, in particular, need to make sure they remain attractive in this respect. Businesses need to stay ahead of the curve to avoid tax risks, reputational risks and other risks that might arise from being ignorant of such factors.

The way to do that is to embed ESG principles throughout an entity's corporate culture,specifically including a company's tax strategy. ESG integration should not be thought of simply as negative screening; it is now simply a corporate way of life.

The writer is tax leader at PwC Singapore. He is also leading PwC Singapore's effort to achieve net zero greenhouse gas emissions by 2030.