Nearly 99% of Tax Leaders Have Begun Preparing for ESG Requirements

Executives are aware of the impact ESG can have on their business, but how are they preparing?
Nearly 99% of Tax Leaders Have Begun Preparing for ESG Requirements
Photo: ArtemisDiana

With ESG disclosures and regulations being forecasted on the horizon for some time, a recent survey by Deloitte of 335 global tax leaders found nearly all respondents said they were in some stage of preparation or implementation of ESG-induced changes.

Despite being in different stages of implementation, there is a general consensus in corporate finance that a company without some form of strategy to approach ESG is going to put itself in a difficult future position. 

CFO’s Impact and Challenges

“Sustainability compliance standards and regulations continue to emerge and evolve” in its impact on financial executives, Mick Kane, global sustainability and climate leader, tax, and legal partner told CFO. “There are new ways that the CFO will rely on their tax leaders to support the business, including the impacts on the value chain.”

Results found nearly three-quarters of respondents have already implemented ESG-inspired policies in both financial metrics and employee wellness (73% and 72%, respectively). Another 61% and 57% have actively implemented environmentally and socially inspired KPIs into their metrics already.

With a majority planning to institute such policies over the next three years, data showed no more than 2% of respondents surveyed have no plans to implement ESG in financial metrics, employee wellness, or any KPIs.  

“Tax leaders will help their CFOs understand the tax implications of sustainability-related changes to supply chains, business models, and/or future organizational structure plans,” Kane said. “All this while providing ongoing tax compliance and broader tax transparency reporting aligned with the company’s broader sustainability goals and objectives.”

Allocation Opportunities 

As ESG regulations are expected to make an impact on the way companies operate across the globe, proactive attempts tend to focus on the idea of funding long-term sustainable energy through positive cash flows from oil and gas. According to the study, oil and gas have the ability to fund sustainable energy by shifting their business model with the record cash flows coming to them. Other Deloitte findings have shown the industry is expected to bring $1.5 trillion in surplus cash by 2030. 

Data from Deloitte hints towards the idea of executives capitalizing on new technologies to mitigate climate change is a smart one. From a tax perspective, the survey showed a tolerance to be more accepting of losses in returns as they transition to a “low carbon future.”

Stephanie Fielding, director of tax and sustainable finance at U.K.-based insurance company BUPA, was quoted in the survey on the importance of implementing attainable and sustainable policies around these ideas.

“People used to see sustainability as one of those fluffy things, with the idea that sustainability teams would work in their little corner without much support from other teams,” Fielding said. “But with the pressures coming from regulators, investors, and others, and the [sustainability] targets that we’ve put out there publicly.

“There was a realization that if we’re going to take this seriously, we have to do this as an organization and make tax and finance part of the journey,” she said.

Embedding Sustainability 

Fielding identified the difficulty that came with initial attempts to incorporate financial teams into sustainability. “Initially, it was a really hard slog to get finance to have a seat at the table,” she said. “It was like, ‘why are you guys sticking your nose in our patch?’ But once the business was able to see the value that tax/finance brought to the discussion, the response became, ‘we need you here, we cannot do this without you.’”

If a company wishes to embed sustainability into its business and company culture, findings suggest they need to create a role for them in the C-suite. Results show 89% of companies now have a chief sustainability officer on their executive boards. Among the majority of tax professionals who have a sustainability executive in their company, 72% of them said they work “closely” with that person in their role. 

If properly approached, the collaboration between finance and ESG can result in valuable sustainability practices that can subsequently create opportunities to save money come tax season. Similar to finance’s ongoing collaboration with IT throughout companies of all industries, strong intercompany communications can result in innovative cost-cutting measures that could otherwise go unnoticed. 

ESG Accounting Demands New Talent

New skills will be required to keep pace with the incoming changes resulting from ESG regulations. When evaluating candidates for hire, new skill sets will provide value in this space. Experience with both indirect and transfer taxes alongside the ability to assess global politics and government policies will be pivotal to the tax professional operating under future ESG-related regulations. Much like the demand for CFOs, financial planning and analysis experience will become increasingly sought after in CPA and accounting support roles.

In a list providing insight from tax leaders on what factors would help drive the tax point of view in sustainability conversations, answers varied. The most popular answer (27%) out of those surveyed said strict adherence to ESG and corporate social responsibility metrics was to begin a dialogue surrounding sustainability policies. Trailing categories included asking for more resources or info (19%), and greater taxes incentives and policies (16%). 

Deloitte surveyors recommend tax leaders consider “upskilling and diversifying the roles” on their teams while acquiring and directing new talent. They also encourage embracing automation while outsourcing and partnering with companies who give a respective organization access to the “capabilities” required to meet increased sustainability-related business needs.