5 steps firms need to take amidst ESG business changes

Firms need to know the value of investing in ESG.

With ESG principles at the core of businesses, companies will need to take some steps to ensure their strategies directly impact their business, including tax and transfer pricing concerns. 

In a report, the KPMG outlined five key steps for businesses to ensure companies have these aspects covered. 

“Supply chain resilience amid unprecedented disruptions may call for shifts in functions and operations within the value chain towards environmentally sustainable practices,” the report read in part.

“Tax departments will need to connect with supply chain, procurement and logistics teams to understand the nature and extent of these changes.”

KPMG added that tax departments will also need to look into the value of investing social change amongst others. 

The first of the five steps asks businesses to determine who makes ESG recommendations, and who establishes the sustainability strategy. KPMG noted it is vital that businesses understand where these decision makers are within the legal and management structure. 

Companies will then need to identify prospective changes in the business as well as assess the anticipated impact on business results. 

“To pursue transformative and meaningful change, tax departments must discuss how the business is evolving and consult the regulatory team for insight into how ESG-related regulations may impact company operations,” the report also said.

It added that tax departments need to know how current and proposed ESG-related initiatives will affect financial results amongst other areas of business. 

Further, companies will need to analyse the transfer pricing policies for ESG-related changes to ensure whether the allocation of income is aligned with functions, assets, and risks. 

For the fifth step, KPMG recommended that multinational companies update their transfer pricing documentation to keep track of changes.