Why sustainability taxes are becoming a core tax issue

The repositioning of tax’s role reflects structural shifts in how sustainability regulation is designed and enforced. Governments are reshaping tax systems in response to persistent fiscal deficits, slowing growth, geopolitical and trade realignment, as well as social and environmental resilience objectives. From a sustainability perspective, these structural pressures include:

•  Meeting binding international climate commitments
•  Funding a fair and inclusive energy transition
•  Introducing carbon pricing and sustainability taxes to achieve net zero pledges and generate revenue for climate action
• Reforming labor, corporate income and indirect taxes to incentivize circular business models and promote competitiveness of strategic industries

However, as sustainability policies differ in design and are implemented inconsistently across jurisdictions, the result is a complex patchwork of environmental taxes and levies. This patchwork creates complications in monitoring compliance, assessing impact and managing mitigation actions across tiered global supply chains using traditional reporting-based regulatory models

Environmental taxes and levies have long been features of revenue regimes. Historically, their fiscal impact was limited due to low or flat rates, cost pass-through along supply chains and disjointed frameworks. However, that too is changing.

The tax function’s unique value lies in its understanding of how the enterprise operates. Sustainability regulation increasingly assigns responsibility to specific legal entities within corporate groups or designated importers or exporters within supply chains. In that context, tax’s existing visibility into business structures becomes directly relevant.

At the most fundamental level, the tax function is well suited to understand transactional flows within the organization. It has insight into how goods and services move through the business and how value travels through value chains. Those flows provide a starting point for identifying where sustainability-related charges arise and where regulatory obligations are triggered.

That visibility extends to legal entity structures. Sustainability regulation frequently allocates responsibility based on the role an entity plays within a supply chain. Tax functions understand how operating and business models are configured, which legal entities carry specific accountabilities and how those structures map to sustainability-related exposure.

This alignment between regulatory design and operational reality explains why tax’s perspective is increasingly central. “Most of these regulations are supply chain focused and driven by who is the importer of record or exporter of record, and that’s where tax understands how the business actually operates,” Truin says.

Tax is also embedded in decisions about where value is created and where risk is borne and managed. This becomes increasingly significant when sustainability costs and liabilities must be allocated across functions, entities, jurisdictions and activities. Questions of who bears cost and economic consequence are already central to tax analysis.

Existing transfer pricing frameworks and documentation provide a foundation for interpreting sustainability-related costs and exposure within established value allocation structures. Rather than introducing entirely new approaches, existing transfer pricing frameworks offer a tried-and-tested basis for assessing sustainability-related cost and exposure.

New data dependencies expanding tax function responsibilities

At the same time, sustainability taxes and levies introduce new data dependencies that intersect directly with tax responsibilities. Compliance and reporting obligations sit frequently within the domain of tax authorities. Emerging cost elements, including carbon pricing instruments such as the Carbon Border Adjustment Mechanism (CBAM) and extended producer responsibility (EPR) regimes, rely on frameworks that determine legal accountability and transactional classification. These developments also create potential internal charging, cost allocation and internal transfer pricing implications.

The financial implications are direct rather than incidental. “Many sustainability-related taxes and market instruments fall along a broad spectrum, from taxes to fees, charges and levies. What they share is an ‘above-the-line’ financial impact, affecting either cost of goods margin or operating margin,” Turnsek says.

Sustainability taxes and levies do not simply add new reporting tasks. They bring regulatory impact and economic consequence into areas tax already analyzes. In this context, tax ideally moves from a downstream role toward earlier involvement in shaping operating model, sourcing and value allocation decisions. This shift does not make the tax function the owner of sustainability data, but it does position tax to influence how regulatory impact translates into operating and financial decisions.

It also reinforces the increasingly cross-functional nature of the tax function. Sustainability regulation intersects with procurement, supply chain, finance, legal, sustainability and IT. Without coordination across these functions, sustainability-related exposure can remain fragmented and decisions may be taken without full visibility of tax consequences. Rather than operating in isolation, leading tax functions work alongside these functions, supporting broader governance structures that address regulatory exposure and financial impact.

Moving beyond reactive compliance toward earlier identification and management of sustainability-related financial exposure signals a change in posture, from responding to emerging obligations to anticipating their impact. “If you don’t know what’s coming your direction, you end up in firefighting mode instead of being able to anticipate the impact,” Truin says.

Tax functions involved earlier with sustainability taxes and levies also help identify where sustainability-related costs and regulatory risks accumulate across value chains, entities and product groups. This is especially important because sustainability-driven data requirements are structural rather than regulation-specific. Regulation-by-regulation responses can result in data duplication and supplier fatigue, as suppliers may be asked to provide similar information multiple times in different formats to meet separate regional requirements. In contrast, centralized master data approaches reduce friction and improve consistency across jurisdictions and obligations. This evolving process is increasingly prioritized within high-performing organizations.

“Innovative tax leaders are using sustainability compliance as a catalyst for broader data discipline. In doing so, they are strengthening tax’s ability to influence commercial and structural decisions, not merely to validate them after the fact,” Truin says.

Enhanced trade and customs visibility support more informed decision-making

Reinforcing the underlying data infrastructure enhances trade and customs visibility and provides clearer supply chain insight. It supports more informed operating and sourcing decisions that align with tax considerations. This broader commercial relevance is increasingly recognized across organizations. “Companies increasingly recognize that strengthening ESG data capabilities supports core business objectives such as enhancing revenue resilience, improving supply chain reliability and identifying opportunities to reduce operating costs,” Turnsek says.

Within this context, organizations increasingly differentiate between baseline compliance and strategic maturity. Some focus on minimum regulatory coverage. Others use sustainability taxes and levies as a lever to improve governance, resilience and competitiveness, repositioning tax as a contributor to enterprise-wide value generation and risk mitigation.

Tax functions are also building ecosystem partnerships to support sustainability requirements. These partnerships provide access to regulatory intelligence and horizon scanning that identifies emerging sustainability taxes and charges before they evolve into financial exposure. They transform integration of third-party and supplier data to meet product-, transaction- and supply-chain–based sustainability obligations. They also improve consistency and auditability of sustainability-related data across jurisdictions, reducing duplication and audit risk. In addition, they enhance scalability when responding to new or developing sustainability requirements without rebuilding processes regulation by regulation.

This allows tax functions to use sustainability taxes as a driver to modernize data, collaboration and decision-making.

Sustainability taxes and levies are expanding in scope and financial impact, extending their reach across supply chains and embedding liability in transactions, entity roles and cross-border flows. As a result, tax functions increasingly sit close to where sustainability-related costs arise and where those costs are ultimately allocated. This proximity matters. Cost allocation, value distribution, transfer pricing and legal accountability are already central to the tax function’s remit, and sustainability taxes intensify that existing intersection rather than redefining it.

For tax leaders, the issue is no longer whether sustainability regulation affects the function. It does. The more significant concern is whether tax is involved early enough to shape outcomes. When tax insight enters discussions only after sourcing decisions are made, operating models designed or supply chains established, sustainability-related costs tend to crystallize as fixed exposure. By contrast, early involvement positions tax to influence how accountability is assigned, how costs are allocated and how value is distributed across entities and jurisdictions.

In a data dependent regulatory environment, tax’s understanding of transactional flows and entity structures enables the function to interpret sustainability-related impact before it becomes embedded in business decisions. Integrated early, tax insight informs choices around sourcing strategies, operating model design and value allocation. This helps organizations assess trade-offs, avoid unintended exposure and align regulatory outcomes with commercial objectives. A shift from reactive interpretation to proactive influence strengthens financial resilience and competitiveness and positions the tax function as a contributor to enterprise decision-making rather than a downstream responder to regulatory change.

Summary

Sustainability regulation is increasingly delivered through fiscal mechanisms that affect transactions, trade flows and corporate structures. As governments embed climate and industrial objectives into tax systems, exposure now crystallizes through entity roles and cross-border activity rather than through disclosure alone. This shift brings tax functions closer to where financial consequences arise. Those with strong visibility into transactional design, value allocation and data flows are better placed to assess impact early. Leading teams are responding by strengthening underlying data, coordinating across functions and integrating sustainability considerations into operating and sourcing decisions, repositioning tax as a contributor to enterprise resilience and performance.

Contributor: Jeroen Truin, Partner, Operating Model Effectiveness and Swiss Sustainability Tax and Law Leader