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Will Green Taxes drive change, or change your drive?


We explore four key questions business leaders should be asking today to develop a roadmap for a sustainable future.


In brief

  • Green Taxes and other related initiatives are designed to discourage harmful environmental impacts and incentivize sustainable behavior
  • This relatively new topic is a catalyst for business and operating model transformation
  • With the right approach and support, organizations can integrate green legislation as a design principle into their strategy for long-term value creation

As the sense of urgency around climate change grows, organizations face a shift in stakeholder expectations, a flood of legislation, and a change in business priorities. In this environment, sustainability considerations are no longer just a nice to have. Environmental, Social and Governance (ESG) criteria help to create sustainable business and while doing so drive stakeholder value through increased transparency. Regulators and policymakers around the world are also increasing efforts to curb the negative environmental impacts of business activity. The primary levers are taxing actions with undesirable impacts and incentivizing those with positive effects. Whatever your sector, a sustainable business model is one that considers the growing role of resource efficiency, low-carbon emissions, and Green Taxes.

EY’s Swiss Green Taxes team has released a brochure to raise awareness of current and potential environmental tax initiatives – which we refer to as Green Taxes – and provide a pragmatic view on how Green Taxes impact the way organizations operate. We explore four key questions to help business leaders grasp the impact of the evolving legislative landscape and create long-term value for their stakeholders. This article summarizes the key aspects. 

For a detailed overview, please download our brochure below. 

Will Green Taxes drive change, or change your drive?

Explore detailed answers to key questions you should be asking today to develop a roadmap for a sustainable future. Download the EY Green Taxes brochure below. 

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  • “Green Taxes” is an umbrella term for environmental tax initiatives that help promote environmentally sustainable business and discourage undesirable behavior through regulatory changes, new taxation mechanisms and funding, incentives and subsidies to enable the sustainability transition. Some examples of Green Taxes include plastic and packaging taxes, water and landfill taxes and carbon taxes.


So how do organizations go about understanding the implications of green legislations for their business models? EY believes that a holistic view is necessary in order to align the business to future societal and economic needs. Business leaders should start by asking four key questions addressing compliance, circularity, operating model and financial support:

  1. Is your organization aware of evolving Green Taxes and how are you ensuring compliance and accountability for the future?
  2. Where might Green Taxes have an impact along your supply chain and how can you mitigate any negative effects?
  3. How are the various operating model layers impacted by Green Taxes and how might your organization respond to the challenges?
  4. Is your organization aware of and in the process of securing available sustainability grants and incentives?

Addressing these questions will help establish your current approach to sustainability and help you develop a roadmap for future success.

How are you ensuring awareness, compliance, and accountability for the future?

 

Green taxes are a relatively new concept, and organizations may, until now, have scrambled to ensure they have an appropriate awareness and understanding of rules and regulations in all of their jurisdictions of relevance. New and upcoming sustainability regulation is far-reaching, and areas of focus will depend on specific industries and countries of operation. Whatever your sector, the topic of Green Taxes should not be seen as a regular and recurring compliance exercise, but rather as a fundamental shift in perspective. By analyzing the legislative trend, you can anticipate developments and align your strategy. In doing so, your organization emerges as a first mover with a potential competitive advantage.

 

Where might Green Taxes have an impact along your supply chain?

 

Supply chains are evolving as business models shift from traditional linear setups to circular business models. Green Taxes impact your business throughout the end-to-end supply chain. They are levied at every step of the way and cause a snowball effect through both direct and indirect costs. From sourcing and transportation to product end-of-life management, decisions throughout the supply chain need to be reviewed carefully.  Although every stage of the supply chain is important, a focus on the (re)cycle stage can help you make the final leap toward the “ideal” state: circularity.

 

How do Green Taxes affect the operating model layers?

 

The overall operating model will need to be adapted to accommodate the shift to a sustainable strategy and business model. Based on what we have seen in the market, organizations are in the process of understanding the implications Green Taxes may have on their operations. Most companies focus initially on protecting their current operating model. This is understandable as a significant overhaul of strategy and business model takes time and demands a fundamental revision of established structures and processes. However, to meet ambitious net zero emissions plans and/or qualify for sustainability incentives, companies will need to rethink the way they operate. Moving to a sustainable business model starts with a gap analysis and impact assessment of the current operating model.

 

Is your organization aware of – and applying for – sustainability grants and other incentives?

Besides levying Green Taxes, governments around the world are providing grants, favorable loan conditions and other incentives. Finance and funding are critical enablers for business transformations since they make the sustainability transition more economically viable. Green-focused incentive programs are becoming more prominent and – together with Green Taxes – need to be fully-integrated into the organization as part of the future operating model. It is important to analyze the risks and opportunities and develop a practical and actionable road map to capture cost savings and business opportunities, with a clear view on the corresponding (green) tax consequences.


Summary

Regardless of sector, organizations are under pressure to embrace more sustainable business practices. Rather than adopting a reactive approach to stakeholder expectations, Green Taxes and government incentive programs, organizations should use them as a starting point to inspire sustainable transformation and create long-term value.


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