Data strategy for a new era of tax, sustainability and value creation

by Renate de Lange-Snijders, Doug McHoney, Carol Stubbings and Gary Rapsey

‘We don’t have good data’ is a phrase we hear increasingly often from executives. Sometimes it is a chief sustainability officer struggling to get a fix on greenhouse gas emissions across the value chain. Sometimes it’s a chief strategy officer trying to understand the financial and non-financial impacts of a potential acquisition. Sometimes it is a chief financial officer lamenting difficulties calculating their company’s international tax obligations under new Pillar Two regulations.

Although these executives are, rightly, focused on their immediate problems, the frequency of these conversations points to a bigger issue: leaders don’t have access to data of the quality they need to meet an array of new reporting requirements or to inform decision-making across a range of environmental, social and governance (ESG) issues—including the tax contribution of business—that increasingly underpin the enterprise value of their companies.

Take, for example, the EU’s Corporate Sustainability Reporting Directive (CSRD), which asks companies to look across more than 1,000 data points covering issues throughout their supply chains such as CO₂ emissions, water consumption, biodiversity loss and human rights. Most of this data does not exist today in company enterprise resource planning (ERP) and other central source systems.

Equally, new Pillar Two tax calculations require more than 270 distinct data points for every constituent entity, of which there can be hundreds in truly global firms. Based on our work with clients, only about half of this granular data is currently held in companies’ central systems. The rest must be tracked down, verified, and combined from applications and spreadsheets throughout the enterprise.

For companies eager to pursue new ways of creating, delivering and capturing value, this lack of access to data is an impediment to realising their strategy. The intent behind new regulations such as CSRD and Pillar Two is to drive changes in business conduct. As companies adapt or reinvent their business models for a new era of sustainable, responsible business, their leaders need high-quality data that they can rely on in making decisions.

Also at stake is stakeholder trust. Unless companies are fully confident in the quality of the information they disclose, they are running reputational risks with potentially serious business consequences. Consumers are holding brands to ever-higher standards of environmental stewardship and data transparency, and they remain sceptical. PwC US’s 2024 Trust Survey shows a widening trust gap between consumers and businesses: 90% of business executives think customers highly trust their companies, whereas only 30% of consumers actually do. This 60 percentage point gap is three points higher than the survey found in both 2023 and 2022.

Shareholders are also concerned about the veracity of what they are being told. The latest PwC global survey of investors revealed a massive trust deficit with respect to sustainability, with 94% saying they believed corporate sustainability reporting contained at least some level of unsupported claims (known as greenwashing), up from 87% the year before.

How should executives approach these complex, interlocking issues? The answer starts with a joined-up conversation among senior leaders, including the CEO, about data strategy and operations across tax and all aspects of ESG. In our experience, many top teams will conclude that their current approach is fragmented and under-resourced relative to the value stake. What’s called for is a unified approach—one driven from the top that aligns pressing compliance challenges with the insights needed to support C-suite aspirations for how the company will create value in future.

Companies are gearing up to meet new sustainability reporting standards set by the European Union, the US Securities and Exchange Commission (SEC), and the International Sustainability Standards Board. Of these ‘big three’ mandates, the EU’s CSRD stands out in terms of scope and complexity, asking companies to assess the materiality of sustainability topics throughout their value chains and then consider which of more than 1,000 data points to disclose. The directive applies to some 50,000 businesses that are listed in the EU or have significant operations there, regardless of where they are based. (The US SEC’s new climate disclosure rules are narrower in scope.)

Under CSRD, executives must also provide qualitative reporting on how they have assessed business opportunities and risks related to sustainability matters, including their company’s impacts on the environment and society (the double-materiality standard) and their plans for addressing opportunities, risks and impacts.

Although many companies already produce annual sustainability reports, the often manual processes that support these voluntary disclosures will need to be comprehensively re-engineered and digitised to meet mandated reporting requirements. For one thing, CSRD asks companies to report not only on the sustainability of their own operations but on the entire value chain, including Scope 3 greenhouse gas emissions. This broad scope means that companies will need to rely on data provided by suppliers, customers and third-party data providers. For another, CSRD requires assurance, starting at the limited level, which means collecting information in a manner that is controlled, repeatable and well-documented, and can withstand scrutiny by third-party auditors.

It would be a mistake, however, to view sustainability reporting only as a compliance burden. In PwC’s Global Investor Survey 2023, three-quarters of investors said they wanted companies to report the effect of sustainability risks and opportunities on the company’s financial statement assumptions, as well as the cost of meeting sustainability commitments. Almost as many (69%) said they would increase their level of investment in companies that manage sustainability issues well.

Against this background, CSRD is an opportunity for leaders to explore the many ways climate change and sustainability challenge today’s business models and present opportunities for deep collaboration and reinvention. Investor relationships and access to capital can be strengthened in the process.

Orchestrated by the OECD and supported by 139 countries, Pillar Two is the world’s first truly global corporate tax system. Designed to discourage companies from shifting profits to low-tax jurisdictions—and avoid a ‘race to the bottom’ on corporate tax rates as countries compete to attract foreign direct investment—it establishes a 15% global minimum tax on corporate income for multinational enterprises with consolidated annual revenues of €750m or higher. A multinational that meets the revenue threshold and operates in any of the countries that enact Pillar Two is forced to comply with this new global system in 2024, regardless of where they’re headquartered.

Importantly, Pillar Two continues the wider trend of aligning tax obligations with the territories in which companies invest, maintain operations, create value, and sell products and services. Pillar Two calculations need to be factored into decision-making on operational and strategic issues, including, for example, location planning, supply chain, and mergers and acquisitions.

It’s worth remembering in this context that even small changes in the effective tax rate of a multinational can mean hundreds of millions of dollars of additional cash tax expense.

Pillar Two also needs to be considered in the context of ESG. Combined with Public Country-by-Country Reporting (CbCR)—a related OECD initiative—the new regime puts a spotlight on the total tax contribution of companies. Executives need reliable data not only to accurately calculate tax liabilities but also to engage in nuanced conversations about the company’s overall approach to tax as part of its commitment to social responsibility. Tax disclosures increasingly speak to a wide audience, including customers and employees, and need to include narrative elements that cover strategy and governance as well as numbers.

From a data strategy perspective, Pillar Two decisively increases the burden and complexity of corporate tax analysis. As noted above, only about half of the very granular data points required for Pillar Two calculations (such as global payroll in every jurisdiction in which the enterprise operates) are typically available in ERP and other central source systems. The rest reside in disparate systems, including those of the human resources, legal, IT and controllership functions.

Adding to the complexity, multinationals need to consider how Pillar Two rules are implemented in different jurisdictions (and how the rules interact with one another) when making calculations. Rules also continue to evolve as more guidance is released and more countries enact legislation, making it critical to build agility into data flows, processes, and Pillar Two calculation engines.

A common pitfall we observe is treating data strategy as a technical task oriented around compliance, not as an opportunity to put foundations in place for future value creation. A critical first step, therefore, is to work within the executive team to align on how data, analytics and reporting can support their long-term agenda. Without C-suite alignment, the likely result is a patchwork of solutions championed by different parts of the business, each of which addresses only one element of the problem while generating unnecessary cost and complexity.

In our experience, chief financial officers are generally well positioned to own the data agenda for tax and sustainability. As we’ve argued elsewhere, this is based partly on their oversight of existing systems of data collection, and partly on their role as steward of financial data. When it comes to reporting and disclosures, CFOs know what good looks like. They are also shapers of strategy, looking across the business to allocate capital to highest-priority initiatives—an ideal perspective from which to guide the vision for data and analytics.

The roles of chief information officer and chief technology officer are also critical. Data strategy and transformation will fail unless technology investments are fully aligned to it. In practice, this means building on existing investments in ERP, cloud and other enabling technologies to create a scalable, cost-effective data and analytics platform for the future.

What of the chief data officer? Where the role exists, the CDO should be deeply involved, in line with their remit to ensure the provision of timely and well-presented information across the enterprise. However, research published by PwC Germany found that only about a quarter of leading companies globally have a CDO, and many are relatively new to their positions. For this reason, we stand by our recommendation that, for most companies, the CFO is best placed to own the agenda.

The shared vision of the executive team is the starting point for a data strategy initiative likely to comprise multiple workstreams under common governance. Although finance, sustainability, tax and technology teams will play central roles, the variety and granularity of data requirements means that many other parts of the business—legal, human resources, marketing and sales, controllership and front-office across territories—will be involved.

Data transformation steps along the way include:

• Assess the current state of data architecture, systems, processes, technology capabilities and resources. Based on these findings, envision a future state to meet not only compliance obligations but also data and analytics to support the value-creation vision.  

• Design an operating model to support the future state, including data platforms, data architecture, technology-enabled processes, calculation engines, a resource model, compliance, and effective governance.

• As part of this process, consider co-sourcing models to manage compliance and data management workloads, allowing internal teams to focus on acting as business partners and providing insights to inform better decisions.

• Build employee skills and capabilities, including in data literacy and governance—that is, how data assets are managed to ensure trustworthiness and accountability, including compliance with policies and regulations. Looking ahead, people will also need skills to work effectively with generative AI tools, such as prompt engineering, validating AI outputs, and understanding the circumstances in which GenAI should and shouldn’t be used.

GenAI tools show enormous potential to streamline the work of sustainability reporting, tax and compliance. Private versions of pre-trained models, run in secure environments, draw on publicly available information combined with company-specific data to provide accurate answers to prompts and requests. In our experience, GenAI is best viewed as a way to help teams work better and build capacity, not as a pure automation tool. It is important to build in checks and balances—such as experienced professionals reviewing and improving at least some of GenAI’s outputs. Overall, we recommend a ‘human-led, tech-powered’ approach in which people make the key decisions and perform the important work. GenAI assists by finding and processing data, summarising documents, and even writing simple software.

Perhaps needless to say, the quality of output depends on the quality of input. In this respect, a solid data infrastructure is a springboard for GenAI deployment, making it much easier to assess the types and volume of data available to the enterprise, how it is governed and used cross-functionally, and data limitations and gaps that need to be accounted for in logic.

The long-established boundary between ‘investor grade’ financial reporting and other disclosures is shifting. For example, some nonfinancial sustainability disclosures require assurance under CSRD, meaning that CFOs will need to demonstrate that they have sufficient evidence on the reliability of the information for an independent auditor to form an opinion. This is new territory.

Stakeholders are pushing for independent third-party assessments as they scrutinise the social impacts of business. For example, companies in the US have faced shareholder proposals calling for external audits of their approaches to organised labour and working conditions. Such heightened scrutiny calls for close attention to governance, process and documentation—the foundations of trust and auditability—even where assurance is not strictly required by regulations.

For this reason, we see a strong case emerging for the role of ESG controller to work alongside chief sustainability officers and other functional leaders to deliver high-quality ESG disclosures by bringing to bear experience gained in handling financial information.

Although every company we know is addressing some of the issues outlined in this article, very few are addressing them holistically and strategically. This is a missed opportunity. A piecemeal approach will cost more in the long run. More important, it is unlikely to deliver the insights that leaders need as they rethink business models and processes, and how they collaborate across ecosystems. What’s at stake is much more than compliance, even if regulations such as CSRD and Pillar Two are spurs to action. It’s how leaders aim to create value and maintain trust in a world being reshaped by climate change, new technology, and the evolving compact between business and society.