The role of Tax in transitioning to a low carbon future

Tax Opportunity

Combatting climate change also presents opportunity to improve broader performance, and stakeholder satisfaction. For Tax there is an opportunity to influence strategy and create value for the business. Whereas the Board and Executives typically determine the lines of the overarching sustainability strategy and plan, tax leaders should also consider how their teams can positively contribute to these changing business priorities and wider social purpose. This way Tax has a vital role to play in decision making and strategy in a companies’ climate transformation efforts. In a previous article (read it here) we touched upon the need for a stronger link between tax and sustainability. Our experts already flagged that there’s a world to be won if companies would know about all opportunities.

As you tackle sustainability, you are embarking on a journey of business transformation. As with any business transformation, there will be tax consequences as a result of business model and supply chain changes. This also brings potential for the tax team to try to capture the value related to this business transformation and ensure the tax strategy follows the business change. In addition, many of the policy levers used by governments on the road to net zero will be in the tax sphere, ranging from grants and incentives, to carbon taxes. For example, the EU’s Green Deal contains an Investment Plan to stimulate public and private investment as well as tax measures such as reforms to the Energy Tax Directive (ETD), that could be in force as of 2023 and the Carbon Border Adjustment Mechanism (CBAM). The OECD has noted that energy and carbon taxes have a key role to play in the transition to a socially inclusive zero-carbon economy.  

In short; Tax teams need to be ready to align their organizations’ long-term global tax strategy with these policy developments and their organisations’ business model changes. By activating the available incentives, assessing tax impacts of changes in legislation, and potentially capturing the value attributable to your companies' business changes through tax aligned planning, tax leaders will play a key role to make the sustainability strategy of the company financially viable.

Put into action

Through Deloitte’s recent report, Five ways tax leaders can help achieve sustainability goals, we have identified five steps tax leaders should take today to keep pace with the business as it shifts toward a sustainable way of operating.

• Identify the tax implications of your business’ ESG strategy
• Understand the tax implications of your company’s value chain
• Prioritize tax transparency on ESG matters
• Transform the tax operating model as it relates to ESG
• Agree on ESG tax roles and responsibilities