• Tax as an essential part of your ESG Agenda

Tax as an essential part of your ESG Agenda

2021-03-24

Original content provided by BDO United Kingdom
 

 

Businesses are increasingly adopting and articulating clear tax principles, aligned to their broader Environmental, Social, and Governance (ESG) agenda. This is a critical element in providing them with their ‘social licence’ to operate which is ever more important to shareholders, investors and wider communities. 

Tax is a key ESG metric: external stakeholders are interested in a business’s corporate income tax behaviours and evidence of the level of tax responsibility it adopts in terms of aggressive tax strategies as well as the level of economic contribution the business makes to society.

In response, many businesses are signing up to increasing transparency standards including the OECD/G20 Principles of Corporate Governance, the GRI (Global Reporting Initiative) standard for comprehensive tax disclosure and the International Business Council (IBC) of the World Economic Forum – Stakeholder Capitalism Metrics. 

It is also important for finance and tax leads to be able to have informed conversations with stakeholders about taxation and wider economic contribution. This is vital in the M&A space where an investor’s ESG program will include evaluation of the investor’s and investee entities’ tax framework. We also see this as part of the Principles of Responsible Investment (PRI).

Our goal is to support businesses in being transparent about how they approach tax matters and tax payments. Greater transparency means providing relevant and meaningful insights about your tax strategy and tax contribution across all jurisdictions in which you operate. 

Global Reporting initiative 207

First global standard for tax transparency

The GRI207 is a tax reporting standard that seeks to ensure multinationals are much clearer about how much – and where – they pay their taxes. It has received widespread international support.
Introduced in 2019, it is a voluntary standard that builds on OECD’s country by country reporting rules, which came into force in June 2018. The GRI207 is a public disclosure and is the first global standard for comprehensive tax disclosure at the country-by-country level. It supports public reporting of a company’s business activities and payments within tax jurisdictions, as well as their approach to tax strategy and governance.

The disclosures in this Standard are designed to help an organization understand and communicate its management approach in relation to tax, and to report its revenue, tax, and business activities on a country-by-country basis.

Every company reporting to GRI’s standards should use GRI 207: Tax 2019 to provide tax information in its sustainability report or an integrated report. Any company that has made a public declaration in support of the Davos Manifesto 2020 should do so as well. Any company wrapping itself in the cloth of ‘stakeholder capitalism’ that isn’t paying its fair share of taxes and being transparent about how it is doing so will look thread-bare clad to me.

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