Tax as a material topic – Insights from CSRD Statements

Early analysis of 250 CSRD statements shows how companies assess tax impacts, risks and opportunities. 

It’s increasingly clear that the Corporate Sustainability Reporting Directive (CSRD) is a pivotal framework guiding companies towards greater transparency and accountability on sustainable practices. 

Is tax a material topic under CSRD, and sustainability reporting more broadly? That question is becoming increasingly relevant for companies, given heightened scrutiny of their tax affairs and the effect on society of their tax contributions.

To help inform how companies consider tax in the context of sustainability reporting, we carried out a detailed analysis of CSRD statements recently published by 250 companies in Europe, using both AI tools and inhouse PwC expertise. 

Why is tax material for some companies?

Our findings show some companies are concluding that tax is material. Why are they reaching this conclusion? We analyse this below, offering insights into the quantitative and qualitative disclosures they’re making. 

What matters most to investors?

Understanding which topics matter most to external stakeholders is essential for companies shaping their sustainability strategies.

Investors play a particularly influential role, as they often rely on sustainability disclosures to inform their investment decisions. 

To shed light on what matters most to investors, we also share insights from PwC’s 2024 Global Investor Survey. These highlight the importance investors place on tax transparency when they’re evaluating companies.

The CSRD requires companies to report reliable information on material sustainability-related impacts, risks and opportunities (IROs) across their value chains. 

This starts with a double materiality assessment (DMA), for which companies consider: 

• financial materiality: effects on the business, expressed as risks and opportunities

• impact materiality: effects on people and the environment.

The 12 European Sustainability Reporting Standards (ESRS) underpin the directive. These comprise two cross-cutting standards (which define general principles, concepts and disclosures) and ten topical standards that cover detailed reporting requirements for various environmental, social and governance matters. They require companies to report material IROs they identify, including plans for addressing them. This includes:

• disclosures on relevant policies

• actions to manage risks and impacts

• metrics to track progress.

If a sustainability topic is material but not addressed by the ESRS, the company must still disclose information about it to enable readers to understand its sustainability-related IROs. One such example is tax.

Our review found that 6% of companies identified tax as a material topic. While more data is needed to conclude that this is a trend, it does suggest that some companies view tax as an important sustainability issue.

For many other companies, our experience suggests that they still view tax solely as an item in the financial statements and question its relevance to sustainability.  This may be explained in part by the fact that the ESRS do not contain a topical standard in respect of tax.

Our findings begin to dispel the notion that tax is not a sustainability matter. As conversations around sustainability broaden, there are early signs that tax is being recognised as part of a company’s overall impact on society. Whether through greater demands for transparency or the growing role of carbon and other environmental taxes, tax is becoming more integrated into broader sustainability strategies. 

PwC’s broader analysis of CSRD statements, In search of sustainable value: The CSRD journey begins, found companies most frequently report on climate change, own workforce and business conduct, with tax reported less frequently. 

This suggests a disconnect between tax departments and sustainability teams in the CSRD process. This could mean that tax teams may not be involved at the appropriate stages of CSRD implementation. As a result, tax may be excluded from the DMA or not considered in the right context.

Drilling into the data, we found most companies that considered tax to be material were in financial services sector. This can be attributed to the increased tax reporting regulations that they are subject to. 

Furthermore, the review found many companies disclosing on tax are headquartered in Spain. That appears to be due to corporate tax governance and reporting initiatives—such as Law 11/2018, which requires Spanish companies to disclose some country-by-country tax information. This aligns to PwC’s global tax transparency and tax sustainability reporting study which found Spanish companies achieved the highest average score per country when benchmarked against PwC’s tax transparency framework.

Impact materiality

This refers to the actual and potential positive or negative effects an organisation has on the environment and society. 

Nearly three-quarters of the companies that identified tax as material did so from an impact perspective, with most identifying it as a positive impact. 

They see tax as critical to social responsibility, directly influencing economic and social outcomes. 

They also acknowledge their obligation to pay taxes in the countries where they operate, and the role tax plays in wealth distribution.

Reasons for identifying tax as a material impact included: 

• how responsible payments and constructive engagement with tax authorities, contribute to greater overall equity and transparency.

• the contribution of tax compliance and transparent reporting—both on taxes paid directly and those collected through operations—to value creation and the sustainability of public finances

• the importance of effective tax management in advancing national development where companies operate

• the value of reporting certain customer and employee information to regulatory authorities as part of their commitment to social responsibility.

By openly disclosing their tax payments and approach to tax, companies can build trust and align with the interests of investors, other stakeholders and the public. 

Financial materiality

29% of the companies identifying tax as a material topic did so from a financial materiality perspective.

This focuses on how environmental, social, and governance matters generate risks or opportunities that affect a company’s future cash flows, performance or cost of capital.

Companies in the review acknowledged tax compliance is essential to avoid fines, reputational damage and potential criminal prosecution.

Reasons for identifying tax as a risk included:

• a commitment to complying with anti-tax evasion laws across jurisdictions.

• the complexity of tax legislation and the potential for differing interpretations, 

• the possibility that political or regulatory actions could result in increased tax liabilities.

Companies with robust tax compliance frameworks are better positioned to avoid these risks, safeguarding their financial stability and corporate reputation.

Companies must make an entity-specific disclosure if they identify a material IRO not sufficiently covered by an ESRS standard.

All those companies reporting on tax as a material topic did so in entity-specific disclosures, with some mapping them as a governance topic, under ESRS G1 - Business Conduct. 

For each material topic identified, companies must disclose the policies and actions adopted to manage associated risks and impacts, including measurable, time-bound targets and related metrics.  

Companies reporting tax as a material topic disclosed tax policy information, such as qualitative data on:

• their approach to tax

• tax risk management policies

• their approach to engaging with tax authorities. 

Some referenced specific actions, such as

• implementing a group-wide tax directive to improve tax transparency

• preparing to comply with the Global Minimum Tax rules

• transparent dialogue with tax authorities

• implementing a tax risk management system.

Others disclosed tax-related targets, such as:

• committing to act with integrity in tax matters and complying with both the letter and the spirit of the law

• using technology to streamline processes and get real-time tax payment data 

• having exemplary tax compliance and risk management standards

• enhancing fiscal transparency and stakeholder alignment.

Over half the companies included quantitative disclosures on tax, either with country breakdowns of their corporate income tax payments or total tax contribution disclosures. Large companies in the EU must publish quantitative data in 2026 under the EU’s Public Country-by-Country Reporting regime (PCbCR), so it will be interesting to assess what impact this has on CSRD disclosures next year.

The European Financial Reporting Advisory Group (EFRAG), which developed the ESRS, has indicated the GRI 207 standard could be used as the basis for tax-related disclosures.

Developed by the Global Reporting Initiative (GRI), GRI 207 was introduced to meet stakeholder demands for greater transparency around tax. It covers:

• approach to tax

• tax governance, control and risk management

• stakeholder engagement and management of tax-related concerns

• country-by-country reporting.

Only three companies reporting tax as material explicitly referenced their disclosures being in accordance with GRI 207. While many companies disclose information that is partially aligned to GRI 207, their level of detail falls short of the standard’s requirements.

Carbon pricing schemes, plastic taxes and the EU’s Carbon Border Adjustment Mechanism (CBAM) are increasingly prominent as the world transitions to a low-carbon economy. They’re designed to discourage environmentally harmful activities, while funding climate-related initiatives.

These taxes intersect with environmental impact and financial performance. They not only incentivise businesses to reduce emissions, minimise waste and adopt cleaner technologies, but also serve as price signals that reveal a company’s exposure to climate-related costs, its climate accountability and its transition-risk preparedness. 

Few companies are disclosing information on environmental taxes in their CSRD reports, however. Among those identifying tax as material, only one explicitly recognised carbon taxes as a transition risk under climate change. It noted the potential financial impact of tightening of carbon tax, emission trading or CBAM scheme regulations leading to higher costs. 

PwC’s Global Investor Survey 2024 sheds light on how much weight investors place on tax as a sustainability topic.

The survey asked investors which non-financial topics are most important when evaluating the companies that they invest in or cover. Investors cited corporate governance as most important to their valuations of companies. Innovation, management competence, human capital management, and cybersecurity round out the top five. 

Close to one in five investors highlighted tax transparency and responsibility as important when evaluating companies. While this ranks outside the top five, it is interesting to compare tax transparency / responsibility to other sustainability topics in the list. It is almost on a par with health, safety and well-being, social impacts, and diversity, equity and inclusion. 

It ranks higher than human rights, nature and biodiversity, water management and waste management. Yet, PwC’s broader analysis of CSRD statements shows us that these other sustainability topics are reported on more frequently than tax.

Despite investor demands for tax transparency, its reporting is less common.

Investors evaluating a company’s tax transparency and responsibility in their decision-making process need access to sufficient information. PwC’s Global Investor Survey found  45% of investors say they really lack enough quantitative tax information. Similarly, 43% say they lack sufficient qualitative tax information to the same degree. 
 
This highlights a clear gap between the information that investors would like to see on tax and the information that organisations publicly disclose.  Sustainability reporting presents an opportunity to bridge the tax transparency gap. 

By giving a more holistic view of their impact and better showing they’re responsible taxpayers, they can build trust, mitigate risks and create value. 

Key actions businesses can take today

Sustainability reporting gives tax leaders an opportunity to reflect both the value-creating role of tax and its broader social and environmental impact, and change the perception that tax is a cost centre. 

1. Engage with the sustainability team 

Currently, there is a disconnect between tax departments and sustainability teams. Tax departments may not be familiar with sustainability reporting and how it could affect their tax strategy, governance and tax risk profile. 

To address this disconnect, tax departments and sustainability teams must engage to ensure the DMA identifies and consider tax-related IROs. Even if tax is not considered material, tax departments should help inform this decision. 

Tax departments may need to take the lead in initiating discussions with their sustainability colleagues.

2. Determine what factors could make tax a material topic 

The question of whether tax is material differs from organisation to organisation. By analysing its tax profile and the expectations of key stakeholders, such as investors and tax authorities, an organisation may conclude tax disclosures could provide confidence in its approach to tax and broader societal impact. Factors such as increased scrutiny of tax practices, evolving regulatory requirements, and the growing relevance of environmental taxes can also elevate tax to a material topic.  

3. Assess current tax disclosures 

Where an organisation already makes some tax disclosures, the first step should be to carry out a gap assessment of existing disclosures to those required under available tax reporting frameworks, such as GRI 207. 

Further, an organisation should undertake a current state assessment of its tax control framework and consider remediation actions in view of future public disclosure requirements. 

4. Evaluate the optimal approach towards quantitative tax disclosures

Companies in scope of the PCbCR regime must disclose a country-level breakdown of corporate income tax payments in 2026. This alone does not mirror the entirety of a company's tax contributions. 

Tax departments should evaluate the potential benefits of disclosing data on the total tax contribution to control the narrative surrounding their organisation's tax payments and give a more holistic perspective on their contribution to society. 

5. Use tax disclosures to assess the maturity of your tax operating model  

Building out tax-related disclosures enables tax departments to reflect on their purpose and how they are achieving their strategic priorities. For most, these priorities will span compliance, risk and business partnering. 

Tax departments should assess the maturity of their current model and the desired future state. This will help frame what they must have, should have and want to have, and will identify the pain points they should address to achieve their goals.

We are here to help you

Conducting a robust assessment of tax-related impacts, risks and opportunities is a critical step in sustainability reporting. 

Full engagement between tax departments and sustainability teams ensures the DMA process identifies and considers the impacts, risks and opportunities relating to tax. 

PwC can support you throughout the DMA process and help integrate the results into your risk management and decision-making processes. 

We can also support you in understanding your tax disclosure obligations and in shaping your broader tax transparency strategy.