Tax in ESG

There is a growing realisation that ESG forms a critical part of modern business and long-term value creation. 

There are a wide range of stakeholders increasingly interested in the ESG profile of businesses – from governments (in the form of regulation), investors, who are turning away from making non-ESG investments, employees who want to work for ethical companies and customers who want to give their money to businesses with values in line with their own.

Over and above enhancing a business’ reputation, it can help enhance resilience, mitigate risk and improve Return On Investment. 

So ESG is on the board agenda for all – multi-national businesses, midsized suppliers, private equity/other investors and high net worth individuals/family offices.

Tax is to be found within each element of the ESG agenda.  Whether it is compliance with Environmental Taxes; to changing attitudes to acceptable behaviours in tax;  to increased transparency and robust tax governance structures to ensure tax policies which reflect wider sustainability efforts are embedded in organisations. 

This focus on tax behaviours stems from the recognition that, within the context of ESG, tax is viewed as a valuable contribution to society – being used to pay for the essential structures of the state.  Aggressive avoidance can lead to reputational damage for the business.  Additionally, businesses with an appetite for high tax risk/poor tax governance are likely to give rise to unexpected surprises in the form of tax authority intervention and reputational damage. 

Tax leaders understand the emphasis and role they can play now in helping their businesses reach their wider ESG related goals:

• In BDO’s US 2022 Tax Outlook Survey, 53% of surveyed tax professionals believed they should be involved in strategic conversations on their business’s ESG programme
• We also found that 86% of Tax Executives believe ESG measures have a positive impact on long-term financial performance