Regulatory and legislative changes increase reporting pressure on tax

All in on ESG

Reporting is a fact of tax life. But reporting that isn’t required – voluntary disclosures, in other words – is something else. The survey revealed a striking result along those lines: all survey respondents said their company planned to make voluntary public disclosures regarding environmental, social and governance (ESG) initiatives.

Still, it’s as relevant as it is revealing: ESG continues to climb higher on the tax agenda and escalate in importance.

The importance it plays is amplified by the fact that ESG is nonfinancial in nature, yet it’s top of mind for finance leaders.

The drivers of “making a difference”

So, what’s driving tax leaders to take action with ESG initiatives?

They indicated an increase in the attention on public transparency in tax reporting. A vast majority (80%) of respondents expected to increase the time they spend preparing tax disclosures and public reports.

Tax and finance leaders said over the next two years, they would like their organizations to address the following ESG issues:

• Environmental and climate risks and impacts
• Risk tolerance
• Employee safety and working conditions
• Diversity and inclusiveness 
• Business ethics

Data’s part in addressing ESG

With tax leaders intent on tackling ESG issues, the question then becomes being prepared to take on ESG-related challenges. Data, as ever, plays a vital role – increasingly so – as tax continues to increase its strategic capacity in parallel.

The 2022 EY Tax and Finance Operations Survey sought to gauge respondents’ confidence that their current tax and finance function has access to data and the processes in place to complete enhanced tax disclosures and public reporting on climate, environmental and diversity.

While most respondents were confident in their organization’s ability to provide such reporting, most companies don’t plan to go at it alone.

In-house and outsource

When it comes to outsourcing, 81% of respondents are more likely than not to co-source tax and finance activities within the next 24 months. This is due largely to the complexities, technology and talent needed to meet growing compliance obligations.

ESG disclosures (while voluntary) figure in significantly to tax leaders’ outsourcing or co-sourcing strategy. A full 95% of respondents say they currently are, or are considering, co-sourcing ESG reporting activities.

Aligning with your talent

Through the lens of 2022 EY Tax and Finance Operations Survey our survey, outsourcing looks obvious. Yet in-house tax talent plays a vital part in the function’s transformation.

Today’s workforce is increasingly concerned about environmental and climate risks and impacts. It’s fitting, then, that respondents identified that very concern as the most important ESG issue facing their organizations over the next two years.

Tax and finance functions would do well to reflect employee ESG interests as the tax function transforms – and it seems they are.