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ESG and tax (part 2)


ESG and tax (part 2)

ESG and tax (part 2)

1. What is ESG?

ESG stands for Environmental, Social, and Governance. It refers to a set of criteria used to evaluate a company’s performance and sustainability practices.

  • Environmental factors consider the company’s impact on the natural environment, such as its carbon emissions, waste management, and resource conservation.
  • Social factors focus on the company’s impact on society, including employee welfare, community engagement, and diversity and inclusion.
  • Governance factors assess the company’s leadership, transparency, and ethical practices.

2. ESG and tax

Some companies like Anglo-American were early starters and have been publishing the Tax and Economic Contribution Report from many years. Similarly, Vodafone have been releasing tax contribution report.

 Some of the points are discussed in detail below:

Environmental taxes

Carbon Taxes

As stated earlier, countries have started levying several forms of environmental taxes/ levies. Carbon-pricing measures (like carbon taxes and the carbon border adjustment mechanism) is amongst one of them.

Carbon tax rates worldwide as of April 1, 2022, by country (in U.S. dollars per metric ton of CO2 equivalent)

 Other variants of taxes like plastic taxes

– Europe Green Deal, also known as FitFor55, where the continent expects to reduce carbon by 55 % in 2030 also includes revision in the energy taxation directive

Tax incentives and tax credits:

  • Governments around the world have recognized the importance of incentivizing sustainable practices through tax policies.
  • Tax incentives are provided to businesses that adopt environmentally friendly technologies, invest in renewable energy, or promote social welfare initiatives. For example, investing in renewable energy projects may make a company eligible for tax credits and incentives.

For ex:

  • R&D tax credit of 12% to 13% for certain climate-related investments in the UK.
  • Production-linked incentives for solar PV modules in India.

Tax Reporting and Transparency:

International Tax Cooperation for Sustainable Development

  • International tax cooperation is vital for promoting sustainable development globally. Multinational companies operate across borders, and their tax practices can have significant implications for ESG and sustainability efforts.
  • Collaborative efforts among countries to combat tax evasion, profit shifting, and base erosion ensure that companies contribute their fair share to society. International tax cooperation also helps prevent harmful tax practices that could undermine sustainable development goals.

3. Considerations For Organisations From A Tax Perspective To Align With ESG

Some of these can be: 

  • Alignment the tax strategy with the overall sustainability strategy of the organization
  • Being tax transparent and disclosing relevant tax-related information to all stakeholders
  • Paying a fair share of taxes and following the practice of tax integrity

Separately, there should be a tax code of conduct and appropriate tax risk management strategies in place.

A transparent tax policy can help businesses to outlay their contribution towards ESG and build trust among various stakeholders.


The views in all sections are personal views of the author.

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