On 8 November 2022, the UK Transition Plan Taskforce announced the gold standard for private sector climate transition plans when it published its Disclosure Framework and accompanying Implementation Guidance that makes recommendations for companies and financial institutions to develop gold standard transition plans. In conjunction, the TPT has launched a Sandbox for companies and financial institutions to test implementation and help users with their own transition plans.
The intention is for businesses to produce a ‘maximalist’ plan covering not only their own decarbonisation plans, but also how their these will accord with the UK’s and the world’s transition to net zero, which need to be both capable of being legally implemented as well as providing a viable tax function.
The Disclosure Framework and Implementation Guidance are open for public consultation until 28 February 2023.
Meanwhile, Deloitte has published a new report highlighting the role of tax departments in the sustainability and climate change policies of large companies. Five ways tax leaders can help achieve sustainability goals brings together the views of 335 tax leaders from businesses around the world. Most sectors report that their environmental, social and governance (ESG) goals are either ‘influenced’ or ‘very influenced’ by the impact of carbon or environmental taxes, with tax and finance now widely seen as ‘part of the journey’ towards hitting sustainability targets that most large businesses have publicly put in place.
The report proposes ‘five steps for tax leaders to take today’:
Identify the tax implications of the business’s ESG strategy: Perhaps the most obvious finding is that tax leaders need to understand the tax impacts of ESG-related actions the business takes as it shifts towards operating in a more sustainable way. This includes not only ensuring the business is compliant but also highlighting any tax incentives that may be available. Tax departments also need to ensure their business leaders understand the tax impact of sustainability changes.
Understand and advise business leaders on the tax implications of the business’s value chain: Sustainability-related supply chain changes will require consideration of intellectual property ownership, transfer pricing, VAT, and customs impacts, particularly where the business operates across multiple jurisdictions.
Prioritise tax transparency on ESG matters: The survey found that compliance with regulatory requirements on tax governance and transparency topped the list of initiatives which are most important to tax leaders’ ability to provide sound tax governance, closely followed by aligning the tax organisation with the company’s integrity, ethics and risk-management practices and using tax expertise to improve the organisation’s broader ESG ratings.
Transform the tax operating model as it relates to ESG: Sustainability efforts subject the tax function to new demands, requiring skills ranging from indirect taxes and transfer pricing to the assessment of new government policies which may have a tax impact on the business.
Agree on ESG tax roles and responsibilities: The role of the tax function may need clarification, as tax team operating models are revised to create capacity for ESG-related advisory and compliance work. The report advises: ‘tax leaders should clearly establish who is responsible and accountable for ESG tax matters - which can range from plastic packaging taxes to minimum-wage issues - and ensure that they have the right level of oversight in areas where they don’t have day-to-day control’.
The report concludes: ‘Tax leaders can leverage opportunities offered by sustainability to transform the business and the tax function itself. To do so, they need to embed tax into business strategies and financial decisions from the outset.’
On 8 November 2022, the UK Transition Plan Taskforce announced the gold standard for private sector climate transition plans when it published its Disclosure Framework and accompanying Implementation Guidance that makes recommendations for companies and financial institutions to develop gold standard transition plans. In conjunction, the TPT has launched a Sandbox for companies and financial institutions to test implementation and help users with their own transition plans.
The intention is for businesses to produce a ‘maximalist’ plan covering not only their own decarbonisation plans, but also how their these will accord with the UK’s and the world’s transition to net zero, which need to be both capable of being legally implemented as well as providing a viable tax function.
The Disclosure Framework and Implementation Guidance are open for public consultation until 28 February 2023.
Meanwhile, Deloitte has published a new report highlighting the role of tax departments in the sustainability and climate change policies of large companies. Five ways tax leaders can help achieve sustainability goals brings together the views of 335 tax leaders from businesses around the world. Most sectors report that their environmental, social and governance (ESG) goals are either ‘influenced’ or ‘very influenced’ by the impact of carbon or environmental taxes, with tax and finance now widely seen as ‘part of the journey’ towards hitting sustainability targets that most large businesses have publicly put in place.
The report proposes ‘five steps for tax leaders to take today’:
Identify the tax implications of the business’s ESG strategy: Perhaps the most obvious finding is that tax leaders need to understand the tax impacts of ESG-related actions the business takes as it shifts towards operating in a more sustainable way. This includes not only ensuring the business is compliant but also highlighting any tax incentives that may be available. Tax departments also need to ensure their business leaders understand the tax impact of sustainability changes.
Understand and advise business leaders on the tax implications of the business’s value chain: Sustainability-related supply chain changes will require consideration of intellectual property ownership, transfer pricing, VAT, and customs impacts, particularly where the business operates across multiple jurisdictions.
Prioritise tax transparency on ESG matters: The survey found that compliance with regulatory requirements on tax governance and transparency topped the list of initiatives which are most important to tax leaders’ ability to provide sound tax governance, closely followed by aligning the tax organisation with the company’s integrity, ethics and risk-management practices and using tax expertise to improve the organisation’s broader ESG ratings.
Transform the tax operating model as it relates to ESG: Sustainability efforts subject the tax function to new demands, requiring skills ranging from indirect taxes and transfer pricing to the assessment of new government policies which may have a tax impact on the business.
Agree on ESG tax roles and responsibilities: The role of the tax function may need clarification, as tax team operating models are revised to create capacity for ESG-related advisory and compliance work. The report advises: ‘tax leaders should clearly establish who is responsible and accountable for ESG tax matters - which can range from plastic packaging taxes to minimum-wage issues - and ensure that they have the right level of oversight in areas where they don’t have day-to-day control’.
The report concludes: ‘Tax leaders can leverage opportunities offered by sustainability to transform the business and the tax function itself. To do so, they need to embed tax into business strategies and financial decisions from the outset.’
