The pressure on businesses to adopt Environmental, Social and Governance (ESG) goals is rapidly growing, with corporate stakeholders driving demand for more sustainable, ethical and transparent business practices.
While this shift towards sustainability and ethical governance is vital for the future, it also introduces significant cost pressures. With thoughtful planning and leveraging of available tax benefits, however, businesses can achieve ESG goals without compromising financial stability.
In this insight, David Stone, an experienced tax advisor specialising in corporate tax compliance, accounting, auditing and advisory services at MHA, explores several cost-effective strategies, particularly around tax savings, to help stakeholders balance the financial challenges of ESG compliance:
One significant way to reduce the upfront costs of ESG practices is through Green Finance. At MHA, we understand that one of the primary barriers to implementing green technology and sustainability initiatives is the high upfront cost. To support businesses on their net-zero journey, we offer specialised Green Asset Finance solutions, which provide a way to invest in sustainability without immediate financial strain. This type of finance allows companies to adopt the latest green technologies while benefiting from
key advantages.
Businesses looking to implement ESG practices into their organisations can also reduce costs through strategic tax planning.
Environmental
The government has two key initiatives to help businesses reduce their environmental footprint.
- Capital Allowances for energy-efficient investments: full first-year relief is available for the purchase of electric vehicles, charging infrastructure, energy-efficient plant and machinery, and building upgrades such as insulation.
- Green subsidies and incentives: there are additional subsidies and grants for businesses that focus on sustainability projects, such as renewable energy installations or transitioning to greener supply chains.
Social
The Social aspect of ESG often revolves around employee well-being and community engagement. These goals can be supported through tax-efficient strategies such as:
- Employee Ownership Trusts (EOTs): transitioning to an EOT allows business owners to exit tax-free, while employees benefit from tax-free bonuses. This structure promotes long-term employee engagement and social responsibility, aligning with both ESG goals and efficient tax planning.
- Tax-efficient equity plans: offering equity as part of employee compensation is another strategy that aligns with ESG’s social goals by promoting wealth sharing. Additionally, gains from such plans are typically taxed at lower Capital Gains Tax (CGT) rates, making them a cost-effective option for both businesses and employees.
- Charitable donations and sponsorships: supporting local charities or community projects can be structured to offer tax relief, enhancing a company’s social footprint while benefiting from financial savings.
Governance
Good corporate governance underpins a robust ESG strategy, and tax compliance plays a crucial role in this. MHA offers guidance on tax risk management and helps businesses navigate new reporting requirements that are integral to strong governance practices.
By investing in tax governance, businesses can avoid costly errors and minimise the risk of unforeseen tax liabilities. This approach enhances transparency, reduces the chance of time-consuming HMRC enquiries, and builds trust with stakeholders, all while saving time and money.
For stakeholders, the challenge of balancing the growing demands for ESG compliance with cost pressures is significant.
At MHA, we are committed to supporting businesses on this journey, offering expert advice on sustainable financing, tax-efficient strategies, and governance frameworks that drive success in the new ESG landscape. By embedding tax considerations into every aspect of ESG strategy, businesses can turn sustainability into a financial asset, rather than a burden.
Contact David at david.stone@mha.co.uk or find out more about MHA via their website.
