Tax strategy is a big deal. It’s not just a box to tick anymore—it’s an integral part of a business' story. As businesses face mounting pressure from regulators and stakeholders to align their practices with environmental, social, and governance (ESG) goals, tax strategy is a key component. This shift is driven by the rising prominence of ESG and the rollout of global tax regulations like the Global Minimum Tax under Pillar Two. Companies that get this right will not only stay ahead of the curve, but they’ll also build stronger reputations and make a bigger social impact.
In this blog, we’ll explore why your tax strategy matters more than ever in the ESG landscape. We’ll dive into why transparency is a big deal now, how businesses are expected to move beyond just reporting effective tax rates, and how important it is that your tax strategy aligns with the broader goals of your business. We’ll also talk about how to prepare for new regulations and make sure your tax disclosures support your ESG efforts, not undermine them. Stick with us—we’ll show you how a proactive approach to tax can give your business the edge it needs.
For years, businesses focused on the effective tax rate (ETR) to measure their tax performance. But now, the conversation is shifting. It’s no longer just about how much tax businesses pay; it’s about where it is paid. Investors, regulators, and consumers are all asking: ‘Are you paying taxes where you have operations and create value within the business?’
The introduction of the OECD’s Global Minimum Tax Legislation, Pillar Two, is making this question even more important. ESG principles demand transparency, and businesses are being asked to prove they are paying taxes in the right places, where their operations generate real economic value. This shift is redefining the tax footprint—not just what’s on your balance sheet, but where your tax contributions are felt in the world. It’s time for businesses to be honest about their tax practices and show they are aligned with their broader values
If your tax strategy is something your finance team handles on their own, you’ve maybe got a problem. In today’s world, tax is everyone’s business. From the boardroom to the back office, it’s a company-wide responsibility. Why? Because tax doesn’t just affect the bottom line—it’s a reflection of your company’s values and its role in society.
The board needs to drive tax strategy and how it fits into your wider ESG goals whilst ensuring compliance with wider tax legislation, including Pillar Two. Tax is no longer just a legal or financial issue; it’s a critical element of corporate governance. By aligning your tax strategy with your ESG narrative, you ensure a coherent, trustworthy message to investors, regulators, employees, and customers.
If you think tax transparency is just a passing trend, think again. Pillar Two and ESG reporting are here to stay, and they’re making tax a much more visible part of corporate reporting. Companies can no longer hide behind vague disclosures. Now, every tax decision—every jurisdiction, every tax payment—is under the microscope.
This increased transparency is a double-edged sword. On one hand, it’s an opportunity to prove you’re doing the right thing by paying tax where you create value. On the other hand, it brings more scrutiny. Businesses will need to show they’re not just following the letter of the law but are genuinely committed to responsible tax practices. As tax becomes an integral part of ESG reports, companies that get their tax story right will be better positioned to win the trust of their stakeholders.
In the past, some businesses voluntarily disclosed their tax practices as part of their broader ESG efforts. Businesses like Anglo American and Vodafone are ahead of the curve making tax part of their sustainability reports for several years now. But now, the rest of the corporate world will have to catch up— Pillar Two and mandatory ESG reporting means that tax reporting is no longer optional for many businesses. It’s a requirement.
Tax disclosures will become a core component of your ESG reports. You’ll need to make sure your tax strategy aligns with both regulatory requirements and your overall ESG narrative. The goal? To show that your tax strategy and practices reflect your business’s values and commitment to social responsibility. The good news? If you’ve been proactively collecting this data, you’re already ahead of the game. But for those who haven’t, it’s time to play catch-up, start compiling your detailed tax data and understand your tax position.
Okay, so you’ve got the data. Now what? The next step is to make sure that data aligns with the narrative you want to tell. Tax data is important, but it’s only useful if it fits into the larger story of your company’s ESG strategy.
Your stakeholders will use this information in different ways. Investors want to see that you’re managing risk and creating value in the long term. Tax authorities want to know that you’re complying with relevant tax laws. And your employees, customers, and the public will want to be reassured that your tax practices are aligned with your commitment to sustainability.
Now’s the time to plan. What will you report? When will you report it? How will you ensure that your tax strategy is consistent with your ESG values? Benchmarking against industry peers is key here. You need to understand where you stand and how your tax practices compare. Having this information at your fingertips will ensure you meet regulatory requirements—and demonstrate that your business is committed to doing the right thing.
Tax strategy is more than just a financial or legal requirement. In the world of ESG, it’s a reflection of your company’s values. As stakeholders demand more transparency, businesses will need to demonstrate that their tax practices align with their broader social responsibility goals.
By making tax strategy a company-wide priority and aligning it with your ESG efforts, you’ll not only meet the requirements of Pillar Two but build trust with your stakeholders. A clear, responsible tax strategy will enhance your reputation, help you navigate regulatory changes, and set your business up for long-term success.
If you need help streamlining your ESG reporting or getting prepared for Pillar Two compliance, ARKK’s got you covered. We specialise in software and services that simplify the tax reporting process so your business can stay ahead of the curve. Get in touch with ARKK today, and let us help you build a transparent, responsible tax strategy that supports your ESG goals and meets the demands of the future.