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Where do ESG and Tax meet?

ESG Tax solutions for your company

Tax is accelerating in ESG

ESG isn’t about checking a box. It’s about running a responsible and responsive business for the long term. It’s about connecting your business to societal impact to create sustainable business advantage and value. So how do you get there from here?

Tax is a significant value driver when businesses need to build their plans to deliver on ESG goals. ESG standards are rapidly expanding to include taxes paid, and governments are progressively using tax incentives for sustainability to encourage responsible corporate behavior and meet sustainability goals. Governments are also looking at carbon tax as a way to put a price on carbon. Furthermore, stakeholders are increasingly considering ESG through a tax lens when assessing a company’s risk profile and strategy, and they expect tax transparency from companies they do business with.

How can your company turn ESG expectations into action? Businesses should put theory aside and develop a practical plan to create value through ESG. Step forward and get ready to tell your tax ESG story.

ESG tax challenges and opportunities that companies are facing

  • Internal carbon pricing model (and legal entity carbon adjusted pricing) aligned with tax operating model
  • New environmental taxes (e.g., plastic packaging and carbon taxes)
  • Changing regulatory environment (e.g., reporting requirements and transparency)
  • Subsidies, credits, incentives and rebates to stimulate sustainable growth, and the need for additional revenue
  • Trust in business relating to tax and societal contribution
  • Confidence that governance and strategy are focused on keeping the business sustainable
  • Demonstrating the business is focused on all stakeholders
  • Strategy and risk management with all stakeholders, especially governments
  • Reliability and assurance in data gathering
  • Tax reporting and stakeholder communication, including a narrative on tax policy

Our solutions

Tax within the ESG landscape is key to shaping how governments can incentivise businesses to meet long-term sustainability goals. Tax as an ESG metric can bring value to the business and enhance a company’s reputation.

The intersection of Tax and ESG: move from theory to action

ESG tax strategy could be a deal maker...or deal breaker

Stakeholders use ESG considerations, including tax-related information, to assess a company’s risk profile and strategy to make informed investment decisions. These considerations are now integrated into a due diligence process for acquisitions and IPOs. 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.

PwC can help your company with:

  • Embedding tax in value bridge development and due diligence execution
  • Capital market readiness
  • Credit qualifications and cost segregation
  • Developing relevant tax and incentive modeling capability for portfolio investors/asset managers

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Tax transparency leads to stakeholder trust

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. A company’s approach to tax is no longer just a question of compliance. It is critical for companies to have the right narrative for their tax strategy and tax contribution. ESG reporting presents a new opportunity to reframe tax reporting as a positive for business.

PwC can help your company with:

  • Data and compliance with reporting frameworks (e.g., Global Reporting Initiative, World Economic Forum, Total Tax Contribution, etc.)
  • Tax function design and tax control framework implementation
  • Tax rate and transparency benchmarking
  • Workforce culture (e.g., diversity, equity and inclusion; recruitment brand, equal pay, etc)
    • Public transparency readiness assessments
    • Tax charter and strategy documents

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An environmental tax strategy is key

A tax informed ESG strategy is key to enabling the cost efficient transition to a low carbon operating model. Companies should design and maintain processes and controls for tax reporting as they become an increased focus area for external auditors and tax administrations. Developing, improving, and unpacking every aspect of fiscal and tax policy can achieve improved economic growth.

PwC can help your company with:

  • Achieving net zero goals and transitioning to green and renewable energy
  • Supporting sustainable finance and investments; green finance and infrastructure investments
  • Alignment of tax operating model with commercial ESG objectives
  • Understanding the tax risks and opportunities associated with changes in the value and supply chain due to new and emerging regulations
    • Identifying and evaluating eligibility for new tax credits, incentives and rebates for investments in resilient capital projects
  • Establishing an automated tax reporting strategy that enables flexibility for evolving ESG tax compliance and reporting obligations, and consistency across existing direct and indirect tax filings
  • Alignment of business model and economic assessment of tax policies
  • Processes and governance to reflect changes in environmental taxation (e.g., R&D incentives, carbon trading and reporting; capital expenditures, etc)

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Insights

Meet our ESG tax leader

Niloufar Molavi

Global Oil & Gas Leader and US ESG Tax Leader, PwC US

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