By Mick Kane and Mark Kennedy
Sustainability measures have quickly permeated every aspect of the business. With so much change expected, tax leaders must have a broad understanding of the rapidly evolving areas of sustainability to differentiate themselves and create value for the business.
Business leaders can consider many aspects of tax to help their organizations accelerate a more sustainable future.
Tax and sustainability are inseparable
A sustainability agenda will bring far-reaching changes to 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 wider sustainability movement. Tax helps provide markets and stakeholders with clear compliance and reporting, which in turn helps tell the company’s sustainability story.
The tax function also helps the business to make value-driven decisions on the sustainability agenda. Today’s leaders are working hard to help their organizations use the various tax incentives related to sustainability, savings opportunities, or credits that can be used by businesses today. They also help their businesses understand the tax implications of sustainability-related changes in supply chains, business models, and organizational structure plans.
Within the largest multinational organizations, the role of tax is to identify and explain the implications of processes and technologies related to sustainability. And they open up opportunities to drive value by ensuring that R&D and technical teams are structured in a way that unlocks available grants and incentives.
Acceptance of the tax function potential
Business leaders are increasingly recognizing the interdependency of corporate sustainability and taxation. In 2022, Deloitte surveyed 335 tax leaders worldwide to see how their functions support their organizational sustainability efforts. Most say that they have become more connected to their organizations sustainability activities but that the tax function is still not playing to its full advantage.
With nearly 90% of respondents saying their organizations have a chief sustainability officer – another clear indication that sustainability is high on corporate agendas – seven out of 10 says the working relationship is “very close.” It is not uncommon for a tax leader to lead the overall corporate sustainability program.
The survey data suggests that many organizations are integrating tax into their overall sustainability strategy.
However, in many instances, the tax department continues to be brought in reactively—often, after strategic decisions have already been made—thus hindering its ability to deliver real value.
Find more value
Prioritizing the sustainability agenda offers tax leaders a unique opportunity to deliver significant value to the organization. In part, this opportunity is occurring naturally as business decision makers begin to recognize the critical role that the success function plays in corporate sustainability strategy. At the same time, the tax function can use corporate sustainability goals to demonstrate its credentials and capabilities as a true business partner and value driver.
Evidence suggests that it is this aspect of sustainability management that will drive strong environmental, social, and tax management. Around the world, issues related to tax transparency are near the top of the governance agenda, with investors and consumers now examining the roles and responsibilities of corporations in society. The surveyed leaders suggest that their organizations have made more progress in management than in the environmental and social aspects of sustainability.
Taking a more active role in management should put the tax function at the center of three key corporate priorities: ensuring tax and regulatory compliance, supporting broader risk management and ethical behavior, and improving organizational sustainability metrics and reporting.
Start delivering the resume opportunity
There are some important actions, identified by the respondents of the survey, the duty of tax should be done now:
- Find out where taxes add value. The ways the tax department can help influence the sustainability agenda vary depending on the sector, market, and business objectives. Finance and tax leaders must begin by exploring the ways that tax can add value and where it intersects at a strategic level and at the operational level.
- Raise management. Ensuring compliance and reporting is a fundamental expectation for the tax function. Now the tax must show that it can play a wider role in facilitating transparent disclosure and reporting around the sustainability, identifying and showing any unique needs, such as investors in the institution.
- Rethink the operating model. To support this shift, new operational models for taxation are emerging. Some functions choose to outsource much of their business-like compliance and reporting activities to focus on business partnerships. Others make good use of professional service advisors to help them build their strategic capacity and their business value proposition.
It is clear that tax and sustainability have become intrinsically linked, with the tax function helping to push the agenda. Top CFOs and finance executives are working with their tax leaders to ensure they are properly included in the ongoing strategy conversations early on. And in doing so, they become more important and valuable to their companies than ever before.
To explore these actions in more depth from a tax leader’s perspective, read Deloitte’s complete Tax Sustainability report.
Mick Kane is the Deloitte Global Tax & Legal Sustainability & Climate leader and Mark Kennedy is a partner at Deloitte UK.