It is imperative that the tax function be well integrated in any company’s sustainability strategy.
Environmental sustainability is of growing importance to companies.
Identifying relevant tax opportunities and issues, including:
can help an organization fund its environmental sustainability initiatives and enhance its bottom line.
Tax directors must work hand in hand with chief sustainability officers (CSOs) and others responsible for sustainability initiatives to understand the potential impacts at all levels of the organization.
A recent Ernst & Young LLP Environmental Sustainability Tax Survey gauged the level of involvement of business tax departments with their companies’ broader corporate environmental and sustainability initiatives. The survey included responses from 223 senior executives at companies of various sizes and industries.
Of the respondents, 19% were CSOs while 81% were tax directors or their equivalent. Responses from each group were sometimes vastly different. For example, only 28% of tax directors believe their company has a sustainability strategy or is developing one, compared to 90% of CSOs.
The survey results show room for improvement in sustainability efforts integration. Only 16% of companies that either have or are developing an environmental sustainability strategy said their tax or finance departments are actively involved.
Furthermore, 30% of respondents did not know whether their companies had a sustainability leader.
Organizations that take a holistic approach to sustainability, with management buy-in and communication among all relevant departments, are best able to identify tax incentives and opportunities that can reduce the costs and improve the return on investment (ROI) of their sustainability programs.
Enhancing the effectiveness of their sustainability programs
Companies should consider adopting best practices, including the following:
- Integrating and communicating the sustainability strategy and goals across all departments and levels within the company
- Ensuring the tax department communicates with the sustainability, facilities and operations departments
- Aggregating sustainability expenditures with general capital expenditures
While 17% of respondents said their companies were aware of and use available incentives to reduce costs related to environmental sustainability initiatives, 37% were unaware of any such incentives.
A company can effectively communicate sustainability initiatives and identify incentive opportunities throughout the organization by framing the discussion in broad categories:
- Reduce consumption of natural resources and carbon emissions
- Switch to alternative energy and fuel sources
- Innovate and develop new clean technology and less carbon-intensive or low-emission products and services to meet the demands of the transforming economy
- Offset carbon emissions
By implementing these communication best practices and using the “Reduce, Switch, Innovate, Offset” (RSIO) framework, companies will be able to identify more incentives and tax credit opportunities related to their sustainability initiatives, improving their ROI and allowing for additional green investments.