As mentioned in our previous post, tax systems around the world are undergoing a transformation towards achieving green policy objectives and driving sustainability.
Corporations must be prepared for the introduction of tax and other policy tools and should be aware of the benefits and implications they represent. This post highlights three challenges corporations face regarding the implementation of green policies: 1) identifying relevant policies, 2) understanding their scope and 3) integrating them into the company’s operations.
Identifying relevant policies
The first challenge companies face is identifying and understanding the tools in place and their relevance for their operations. In most cases, companies are aware of relevant penalties but lack information on other instruments’ potential usefulness. Given that the green policies are increasingly focusing on incentives and other tools such as low-interest loans and grants, companies should take advantage of these incentives by reviewing strategies and operations, and evaluating the incorporation of incentives into new or existing projects.
Understanding policies’ scope
Companies often misinterpret the scope of green policy tools. In some cases, corporations believe these instruments are only relevant to companies offering green products or services or to companies who have a long-term sustainability strategy. Fortunately, green policies are addressing multiple topics and can result in the transformation of core strategies, the modification of everyday operations and the increase of the feasibility of projects in the pipeline. For example, the Japanese government is providing subsidies to acquire eco-friendly vehicles and fleets, which will reduce a company’s transportation costs considerably; Australian farmers are selling carbon credits to companies looking to offset emissions and are contributing to more sustainable farming practices in the country; and energy-efficient buildings deductions in the U.S. are representing millions of dollars in potential savings to corporations.
Integrating policies into everyday operations
The adoption of new policies into everyday operations can represent challenges that require leadership and collaboration. In this process, company leaders have to make sure that policies are considered an opportunity and not a threat. As reported in E&Y’s Six Growing Trends in Corporate Sustainability, setting the tone from the top is key to ensure the adoption of sustainable practices. The same approach should be adopted when aiming for the adaptation of green policies by companies.
At the same time, the introduction of new policies will require alignment across areas in both strategy and processes. In order to successfully adopt these, collaboration among areas is essential: the translation of sustainability issues into costs and benefits by financial teams, into project planning tasks by operations departments and so forth. Lastly, the communication of potential benefits and clarity in goals will be key to engage all areas of a company into making the necessary changes to adopt new policies.
Governments have taken steps – however timid – towards addressing environmental challenges. Corporations contribute to these challenges and should play a central role in addressing them too. As companies incorporate green policy tools and become examples of successful adaption, the private sector’s perspective and experience will be an invaluable source of information for the future design and evaluation of green tax systems. It could be win – win for everybody…