Companies look to tax professionals to realize ESG goals

As foreign companies look to increase US investment and sustainability professionals get their heads around how the Inflation Reduction Act can align with net-zero goals, firms such as EY are hosting roundtable discussions. In a media roundtable hosted by the accounting firm in late January, consulting executives detailed what they’ve been seeing since its passage. We touch on some of the highlights below.

Where the confusion lies: One piece of the confusion is that historically, when Congress has unveiled federal credits, it has been industry specific. For this act, it’s much broader, EY told listeners. “Under the IRA, the nice thing is that the opportunities will apply across the sector. And that would be whether you’re in utilities, or energy, and all the way through consumer products, if you’re making certain sustainable investments,” Brian Smith, global incentives, innovation and location services and Americas indirect tax inbound leader at EY, said.

Tax and sustainability: If sustainability and tax professionals haven’t been sitting next to each other, it might be a good time to rearrange the seating chart, EY sustainability and ESG tax leader Kristen Gray suggested. “Often it’s tax departments who are charged with understanding the Inflation Reduction Act and how it’s applicable to the larger organization. But sometimes there’s a disconnect between tax and what the company’s broader goals are with respect to net zero or greenhouse gas emissions reductions,” Gray said during the discussion.

She added that they are seeing clients and companies’ sustainability departments who aren’t aware of the green funding opportunities in the act, which would “make all the difference in deciding whether a project is financially viable.”

“Any company who’s targeting to reduce greenhouse-gas emissions should absolutely be exploring the funding opportunities in the act to help achieve those goals,” Gray said. The IRA offers $369 billion in climate provisions, according to CNBC.

Capital allocation: Smith said that the firm has been in touch with “a number of foreign companies,” including in Europe or Asia who are changing their overall investment decisions, in the US, due to particular credits available in the IRA. Those companies are looking at energy credits, 48 Cap C, which is a direct income tax benefit.

“When we’re competing with other countries to spur investment, this is a refundable cash equivalent opportunity that can really accelerate the return on investment for a company,” Smith said. “Companies that perhaps normally would not look at coming over to the US are contemplating that.”

While the IRA may have spurred foreign companies to look towards the US, the reallocation of capital resources has left Europe panicking a bit, leading European leaders to propose a similar act at the World Economic Forum in Davos a few weeks ago.

And while the increase in demand may be welcomed by US companies, that doesn’t mean that the supply will be able to instantly match up. Smith said that one of the challenges will be seeing if there is capacity to ramp up manufacturing.

Much of the inner workings of the IRA can align with wider corporate strategies but the tax professionals are going to be the ones companies rely on to answer the tough questions. “It’s really critical for taxpayers to understand the rules and how they may apply to their specific projects,” Gray told listeners.—KT