To fully realize the synergies between capturing the various IRA incentives and achieving overall ESG goals, power and utility companies need to support collaboration across the various stakeholder functions. While tax teams typically focus on securing credits and incentives, other finance-centric teams will be taking on expanded responsibilities ranging from complying with proposed SEC reporting requirements (which include carbon and ESG reporting), once effective, to working with vendors, contractors and even regulators to confirm tax benefits are being realized and properly reflected in the overall capital plans for power and utility companies.
For example, under the IRA, many of the credits have at least two components: a “base” credit representing 20% of the credit and a bonus credit, representing an additional 80%. To receive the bonus credit, the company must typically meet certain criteria, including wage and apprenticeship requirements. Meeting the wage requirement requires the developer to pay a “prevailing wage” in accordance with federal guidelines to any laborers and mechanics employed by the developer in the construction of the facility (including their contractors and subcontractors). Complying with these provisions will require tax, HR, payroll, supply chain procurement, general counsel, information technology and various other departments to collaborate in order to collect and analyze the requisite data.
Finance leaders will also need to work closely with the technology leader (CTO) to make the appropriate technology investments that integrate and align supply chain and procurement with broader sustainability initiatives. HR will need to be involved from the perspective of helping establish a corporate culture that prioritizes sustainability. And to bring it all together, the data leader (CDO) should collaborate with these units to create a data-focused culture with programs to efficiently collect quality data that supports and drives the ESG effort.
Data will also be key to other ESG-related reporting under consideration, such as the SEC’s proposed framework for reporting on different categorizations of greenhouse gas emissions. Reporting of different types of emissions, such as those classified, will be required and must therefore be carefully tracked. To address these requirements, organizations will need to track data on Scope 1 emissions, which are from sources that an organization owns or controls directly – for example, from burning fuel in an electric generation plant. The proposed SEC framework will also require organizations to keep track of Scope 2 emissions, which are indirect greenhouse gas emissions associated with the purchase of electricity, steam or heat.
Given the central role power and utility companies play in the power-generation ecosystem, the accurate collection and reporting of this data, which may include financial, ESG and carbon-specific information, is essential for utilities and for their corporate customers. The chief sustainability and finance officers will need to work together closely on this aspect of reporting. They will also need to team with the chief data officer to provide this information back to the C-suite and Board so they can adjust corporate strategy, if necessary.
To make the process of collecting data more sustainable and efficient, data officers and their organization may need to reconfigure how they gather information and set up new pathways to funnel that data to the finance and, when necessary, the tax team. To further this effort, they should consider
- Establishing holistic investment processes. Capital investments need to consider the IRA, state/local policy, and any relevant incentives throughout the development lifecycle.
- Uncovering new sources of data collection. To satisfy potential reporting uses, power and utility companies should consider collecting more than the minimum required for IRA compliance, evaluating ways to leverage data for other types of external ESG reporting.