How Tax Drives Organizational ESG Objectives

Green Landscape

For tax leaders who are looking for ways to enhance their department’s business value and influence, the opportunities to do so by powering sustainability strategy keeps expanding. The Inflation Reduction Act (IRA) offers hundreds of billions of dollars in federal tax credits and discretionary incentives.  However, it’s just one of several areas that tax groups should be exploring, according the Deloitte report, 4 Ways Tax Can Drive Value for Environmental Sustainability Strategy.

The report notes that “while tax departments are supporting their business’ sustainability efforts through compliance and environmental, social, and governance (ESG) reporting, they can do more to help their organization accelerate its sustainability goals and make ESG a central business issue.” 

Tax leaders should look at these four areas:

  1. Grants, credits and discretionary incentives. The IRA’s clean energy credits and new incentives cover areas ranging from hydrogen production to manufacturing of clean energy components to electric vehicles. A financially sound ESG program should consider categories such as cash grants, forgivable loans, income tax credits, and job-related credits.
  2. Indirect tax. Investments in a wide range of new equipment, technology and fuels can create opportunities for exemptions and abatements. For example, in Wisconsin renewable energy systems are exempt from sales tax and in Colorado, clean fuel vehicle property is exempt from sales tax. In addition, companies may be able to reduce U.S. and state excise taxes by reducing their dependency on gasoline across company fleets or incorporating alternative fuels.
  3. Value chain planning. Sustainability commitments aimed at improving the company’s overall carbon footprint can impact many functions including R&D, procurement and sales. The impact on the global income tax profile should be carefully considered. Sustainable sourcing can build positive value with customers and investment in sustainable technologies can create significant value in intellectual property.
  4. Joint ventures and M&A. Tax can help companies view mergers and acquisitions through a sustainable business value lens. Tax organizations should carefully evaluate M&A targets to understand their use of tax credits, subsidies and grants related to clean energy, as well as any potential impact on the buyer’s own tax-related sustainability efforts. 

Tax leaders can and should play a key role, the article concludes, in ensuring that “an organization’s environmental sustainability strategy reaps cost-savings opportunities that may help fund the journey to sustainability.”

 I’m seeing more information and analysis on tax’s evolving ESG, so I’ll keep you posted.

Blog Author

Larry Mellon, Tax Directory, Vertex Inc

Larry Mellon

Tax Director, Chief Tax Office

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Larry Mellon is a Tax Director in the Chief Tax Office, where he is responsible for providing insights, thought leadership and customer-centric direction to Vertex functional groups, supporting the continued expansion of Vertex indirect tax solutions and overall enterprise strategy. He has over 30 years of experience in sales and use tax compliance, risk assessment, jurisdictional audits, administration and management, as well as VAT compliance. Larry joined Vertex in 2005 as a Sales and Income Tax Supervisor and has served as Tax Manager since 2012, where he has played a pivotal role in elevating and advancing the company’s tax management offerings.

Prior to joining Vertex, Larry served as a Senior Tax Accountant and Property Tax Manager at Foamex International, Inc., a polyurethane and advanced polymer foam product manufacturer and marketer. Mellon also held multiple roles at The Franklin Mint and is a member of the Institute of Professionals in Taxation (IPT) and Tax Executives Institute (TEI).

A Retailers Guide to ESG & How It Intersects with Tax

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