PwC study: Tax transparency and sustainability grow together
19 October, 2022
Tax information is becoming increasingly important for sustainability reporting / DACH region is dominated by different reporting frameworks / GRI 207: Tax 2019 leads in Germany and Austria
Berlin, Vienna, Zurich, 19 October 2022
With the “GRI 207: Tax 2019” standard adopted in December 2019, the Global Reporting Initiative (GRI) has defined for the first time which information tax transparency reports should contain as part of sustainability reporting. As a result, the auditing and consulting firm PwC Germany already published a study on tax transparency and sustainability reporting in the DAX40 for the reporting year 2020. The basic finding: The first listed companies have published information on fiscal sustainability in 2021.
PwC Germany, in cooperation with PwC Austria and PwC Switzerland, followed up on this by examining the tax transparency and sustainability reporting of the 108 leading companies listed in the German Share Index (DAX), Austrian Traded Index (ATX) and Swiss Market Index Expanded Index (SMIEXP). A decisive criterion: consideration of the requirements from four key frameworks – the GRI 207: Tax 2019 standard, the Tax Strategy Criterion of the S&P Global Corporate Sustainability Assessments, the OECD Guidelines for Multinational Enterprises and the white paper, the so-called “Measuring Stakeholder Capitalism” report, of the World Economic Forum.
GRI 207 sets the agenda in Germany and Austria
One of the core findings of the study is that the majority of listed companies in the DACH region will publish initial information as part of their tax transparency and sustainability reporting in 2022. The results also show that of the four frameworks in use, the GRI 207: Tax 2019 standard has the greatest relevance for the German and Austrian markets.
Swiss companies, on the other hand, are increasingly relying on the tax strategy criterion of the S&P Global Corporate Sustainability Assessment. This is used in particular to select the components of the Dow Jones Sustainability Indices and, in contrast to GRI 207, is more strongly oriented towards investor expectations.
Extended reporting is becoming a competitive advantage
Regarding Germany, it is noticeable that, based on GRI 207, some of the DAX companies have improved through more comprehensive reporting. By contrast, those who have not significantly expanded their reporting have fallen behind in the rankings.
In Austria, however, the situation is still somewhat different: Here, only a few companies publish tax information in connection with the sustainability report. In this context, expanding the scope of reporting can be useful: Certain sustainability-related ratings and indices, for example through the S&P CSA, use tax information as a review criterion.
“It is expected that the capital market will take a closer look at ESG reporting in the future.”
Individual sectors as pioneers
In addition to the regional differences, certain trends also emerge when looking at the different sectors. For example, banks and financial service providers as well as commodity companies are among the pioneers in tax transparency and sustainability reporting. This is because companies from these sectors are affected by mandatory disclosure requirements such as the Accounting Directive or the Taxonomy Regulation anyway. The study shows that many leading companies already tend to report more extensively due to their legal obligations. Other sectors, including the energy or telecommunications sector and insurers, for example, are in turn dependent on good ratings and consequently also on extended reporting due to special competitive conditions.
“Those who have not yet engaged in fiscal sustainability reporting will have to rethink. Customers, investors, internal stakeholders, and also legislators are placing increasingly high demands on transparency.”
The need to catch up with quantitative key figures
Although the focus of the individual frameworks differs greatly in places, a commonality has emerged across all standards: Requirements that require a qualitative description tended to be reported more frequently. Quantitative key figures are reported less frequently by many companies due to the data required, the higher effort required to collect the data and certain competitive risks. It is precisely due to their business and trade secrecy that many companies are cautious about publishing quantitative data relating to a Country-by-Country Reporting (CbCR) or a Total Tax Contribution. However, in the European Single Market, the publication of a CbCR for reports will become mandatory from 22 June 2024. Therefore, more and more companies are deciding to report in advance on a voluntary basis and thereby improve their ratings compared to competitors.
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