What level of engagement between tax and broader Environmental, Social and Governance (ESG) reporting should there be?
Panellists’ views: The panel’s view was that ESG reporting goes to the heart of an organisation’s purpose, strategy, and values; how all business functions work together to achieve its strategic aims and communicate its impact on society. Tax leads the way on this as it touches all areas of the business - most decisions an organisation takes have some kind of impact on its tax profile. Tax is also considered by stakeholders to be an indicator of an organisation’s risk profile and a reflection of corporate behaviour more generally.
Tax can therefore be a powerful tool to reach a wider stakeholder audience, amplifying other ESG messages an organisation may wish to disclose and helping to paint a complete picture. Building together tax and ESG reporting can enable stronger communication, and facilitate a broader understanding of an organisation's business model and strategy. It is therefore important for organisations to engage not only with ESG reporting, but also make that link between tax and ESG where the connection is material.
PwC’s view: I think that the tax team should be a part of ESG working groups at all organisations even where tax is not deemed to be material for the business. Tax is a key lever that governments have to change behaviours, and can sit within the E (green taxes and incentives), the S (contribution to society) and G (board level engagement) of the ESG agenda.
What benefits are there to being more transparent from a tax perspective?
Panellists’ views: There are many benefits for an organisation from being more transparent. At a high level, it builds trust with all stakeholders and encourages engagement with the tax team from across the organisation. Tax often makes the headlines and having a robust transparency strategy in place can enable an organisation to respond to external queries with certainty. Greater transparency can also be used to build trust with governments and encourage positive engagement.
Even within an organisation, many stakeholders, such as employees, are interested in the tax affairs of their employer. Being more transparent on tax provides clarity around an otherwise complex topic, and internal stakeholders often appreciate that clarity to the same extent as external stakeholders.
PwC’s view: A key consideration every organisation should take into account when developing a tax transparency strategy is ‘tax transparency to whom and for what purpose?’. It is important to consider which stakeholders are reading your disclosures, what they want to know, and the value that additional disclosures would bring to your organisation. For example, public country-by-country disclosures will be with us in the near future, but these can be challenging to interpret without an accompanying narrative designed to bring out the key messages from the data.
Can investors place reliance on ESG tax data? Is there a need for assurance?
Panellists’ views: Data and the accuracy of data provided by organisations are paramount to the investor community in holding organisations accountable. Investors look to organisations that are going to generate value in the future, and a key part of determining this is validating the current organisation’s financial picture - using both financial and ESG data. However, gaining trust in data is a journey. We live in an age of Big Data where standardisation of ESG data across organisations and industries is arguably still in its infancy.
While having assurance over data is useful for investors, the implementation of assurance over ESG data should not be rushed. Organisations need time to build standardised data collection processes and to develop an understanding of their data before having to seek assurance. Investor experience suggests that rushing the introduction of assurance too early leads to more limited disclosures and stifles innovation, which is ultimately less useful for the investor community.
PwC’s view: As an assurance firm, we’re unlikely to say that assurance isn’t required over ESG data. It is important to stress, however, that if an organisation is releasing data, a level of assurance provides the users of that data with a degree of confidence in its accuracy and value.
Is there enough guidance around ESG tax reporting compared to, say, IFRS?
Panellists’ views: The answer to this question will really differ on a case-by-case basis as each organisation is different and will have a different approach to ESG tax reporting. It’s not a ‘one size fits all’ situation.
Many organisations will prefer having a blank canvas to work from as this enables them to focus on areas of disclosure within ESG tax reporting that their stakeholders want to see. Other organisations often use standards, such as the GRI 207 Tax Standard, to guide them. As all the various sustainability standard-setting organisations work towards convergence under the International Sustainability Standards Board (ISSB) mandate, further guidance around what this landscape will look like in the future would be helpful.
PwC’s view: This is a new and emerging area and as always with change, it can be difficult to navigate. At present, there is limited guidance on tax, and as a result, data that is published is often not comparable. As standards start to align, greater guidance would be helpful.
