By Mick Kane and Mark Kennedy
Sustainability measures are quickly permeating every aspect of business. With so much change anticipated, tax leaders need to have a broad understanding of the fast-evolving areas of sustainability to distinguish themselves and create value for the business.
Business leaders can take several aspects of tax into consideration to help their organizations accelerate toward a more sustainable future.
Tax and sustainability are inseparable
A sustainability agenda will bring far-reaching changes to a business and its operating model. Those changes require finance functions to support the business in new ways, including the need to understand the tax consequences for sustainability-related business changes.
At the same time, governance has emerged as a key component of the broader sustainability movement. Tax helps provide markets and stakeholders with transparent compliance and reporting, which in turn helps tell the company’s sustainability story.
The tax function is also helping the business make value-driven decisions on the sustainability agenda. Leaders are now hard at work helping their organizations use various sustainability-related tax incentives, savings opportunities, or credits that may be available to businesses today. They are also helping their businesses understand the tax impacts of sustainability-related changes to supply chains, business models, and organizational structure plans.
Within the biggest multinational organizations, the tax function is identifying and explaining the implications of sustainability-related processes and technologies. And they are uncovering opportunities to drive value by ensuring R&D and technical teams are structured in a way that unlocks available grants and incentives.
Embracing the tax function’s potential
Business leaders increasingly recognize the interdependency of corporate sustainability and tax. In 2022, Deloitte surveyed 335 tax leaders globally to see how their functions are supporting their organizational sustainability efforts. Most said they are becoming increasingly connected to their organizations’ sustainability activities but that the tax function is still not playing to its full advantage.
Of the nearly 90% of respondents who said their organizations have a chief sustainability officer—another clear indication that sustainability is at the very top of corporate agendas—seven in 10 said the working relationship is “very close.” It is not unheard of for a tax leader to head up the overall corporate sustainability program.
The survey data suggests more organizations are integrating tax into their overall sustainability strategy.
However, in many instances, the tax department continues to be brought in reactively—often, after the strategic decisions have already been made—thereby hindering its ability to deliver real value.
Finding more value
Prioritizing the sustainability agenda offers tax leaders a distinct opportunity to deliver significant value to the organization. In part, this opportunity will occur naturally as business decision makers start to recognize the critical role the function plays in the success of the corporate sustainability strategy. At the same time, the tax function can use the corporate sustainability goals to brandish its credentials and capabilities as a true business partner and value driver.
Evidence suggests it is the governance aspect of sustainability that will drive tax’s environmental, social, and governance momentum. Around the world, issues related to tax transparency are near the top of the governance agenda, with investors and consumers now scrutinizing corporations’ roles and responsibilities in society. The surveyed leaders suggest their organizations have made significantly more progress on governance than on the environmental and social aspects of sustainability.
Taking a more active role in governance should put the tax function at the center of three key corporate priorities: ensuring tax and regulatory compliance, supporting the broader risk management and ethics practices, and improving the organization’s sustainability metrics and reporting.
Start delivering the sustainability opportunity
There are some key actions, identified by the survey respondents, the tax function should take now:
- Know where tax can add value. The ways the tax department can help influence the sustainability agenda vary widely depending on the sector, market, and business objectives. Finance and tax leaders should start by exploring the ways tax could add value and where it intersects at a strategic level and at the operational level.
- Elevate the governance. Ensuring compliance and reporting is a fundamental expectation for the tax function. Now tax needs to demonstrate that it can play a wider role in facilitating transparent disclosure and reporting around sustainability, recognizing and reflecting any unique needs, such as those of institutional investors.
- Reconsider the operating model. To support this shift, new operating models for tax are emerging. Some functions are choosing to outsource most of their business-as-usual compliance and reporting activities to focus on partnering with the business. Others are making good use of professional services advisers to help them build their strategic capacity and their value proposition to the business.
It is clear tax and sustainability are becoming intrinsically linked, with the tax function helping drive the agenda. Leading CFOs and finance executives are working with their tax leaders to ensure they are properly embedded in the sustainability strategy conversations early on. And in doing so, they are becoming more integral and valuable to their companies than ever before.
To explore these actions in more depth from a tax leader’s perspective, read Deloitte’s full Tax Sustainability report.
Mick Kane is the Deloitte Global Tax & Legal Sustainability & Climate leader and Mark Kennedy is a partner at Deloitte UK.