How your company could increase the ROI of its sustainability strategy

Companies can use technology to take advantage of billions of dollars of ESG tax incentives and credits

ESG tax incentives, credits and government financial assistance awards (e.g., grants, cooperative agreements and government loans) can fundamentally change how companies implement their sustainability strategies. 

As your company seeks to reduce its carbon footprint, it’s likely to consider multiple projects across the enterprise. Company leaders will have to make some tough calls on which ones to fund. Tax incentives, credits and financial assistance awards, including the ability to combine these opportunities, should be key inputs in the decision-making process because they can affect how much a project will cost, the optimal location and the potential return on investment. The recent expansion and extension of investment and production tax credits in the United States could, for example, reduce the cost of solar and onshore wind by as much as 60% and 1.8 cents/KWh, respectively, while a grant may provide as much as 50% of the eligible costs. A project that might not seem viable at first glance could be once these variables are added to the equation.

Yes, it can be difficult to take full advantage of these funding opportunities. Your company’s decarbonization plan may be highly localized while also having assets in many cities, states and countries. You need visibility into your entire operations when considering the costs and benefits of projects such as installing solar panels, pursuing thermal decarbonization, switching to a fleet of electric vehicles or investing in low-carbon manufacturing.

The decarbonization market is similarly localized. Cities and states across the country have plans to reduce greenhouse gas emissions that typically include a combination of tax incentives, tax credits, financial assistance and new rules aimed at changing the behaviors of companies that operate there. Each city or state can take its own approach to incentivizing sustainability by focusing on certain tactics, enacting regulations and setting deadlines. As companies develop their emission reduction targets, they need to view their goals in the context of complying with the rules and regulations where they operate.

A flexible sustainability strategy is key as more cities and states — as well as other countries — announce decarbonization plans. Geospatial analytics, natural language processing and data analytics can help your company understand what it needs to do to reduce its carbon footprint, identify decarbonization opportunities by location, and then map those efforts to available tax and financial assistance incentives. By leveraging data and technology, your company can gain new insights into its operations and that can potentially lead to more informed action and unlock competitive advantages and growth opportunities.

When it comes to developing a sustainability strategy, the conversation inevitably turns to questions such as “How much will it cost?” and “What’s the return on our investment?” from business leaders. Tax incentives and credits can alter the answers and potentially shift the way your company achieves any targets it sets by prioritizing certain initiatives and locations over others. These opportunities exist at the federal, state and city levels.

Technology can be a powerful tool for collecting, analyzing and ultimately reporting ESG data. When it comes to tax incentives, it can also allow your company to map these funding opportunities to your carbon reduction efforts so that you have a better understanding of your costs, technology needs and the options for achieving your goals. Technology can also help your company stay in compliance with evolving state, federal and international regulations. Follow these steps to develop a strategy that makes the most of these funding opportunities:

We know that companies are running multiple sustainability projects in parallel. To alleviate collaboration, communication or execution issues, your company should consider an operating model that treats sustainability as a material business issue and incorporates associated initiatives into corporate strategy. Doing so will help your company avoid silo-based thinking, slow or limited responses to market drivers, partially implemented programs and limited awareness across the organization.

The importance of such an operating model is particularly acute when considering the tax incentives and financial assistance programs that can make a sizable dent in the price tag of certain sustainability initiatives. Technology can be a powerful tool in that endeavor, but technology is just that — a tool. The complexity of staying in compliance with new rules and regulations and taking full advantage of available tax incentives, credits and financial assistance is a reminder of how important cross-functional teams can be to sustainability efforts. To do that effectively, your company will need employment, demographic, infrastructure, community, partnerships and geospatial data that will be pulled from teams across the enterprise. Here are some actions your company’s leaders should consider.

• Embed the tax and government financial assistance teams in every conversation about innovation, product development and production in an effort to get more value out of available incentives. 
• Evaluate how aligned your current supply chain is to take advantage of the available credits and funding. This includes understanding whether domestic content requirements apply and based upon the tax incentive or financial assistance to which particular domestic content rules apply.
• Determine how carbon reduction could change your cost structure, the price of products and services, and profit and loss.
• Upskill the workforce. Tax incentives and financial assistance can help fund new initiatives, which, in turn, can lead to colleagues taking on new roles and responsibilities. Some may need to learn new skills. Others may just need clear communication. For financial assistance, this may even require partnerships with educational institutions to provide skills to new entrants to the workforce to create a sustainable and diverse workforce. 
• Provide candid updates about the progress of sustainability efforts and working to develop a culture that supports sustainability initiatives.

Your company may want to consider the benefits of involving a third party to help you understand all of the city, state, federal and international tax incentives, credits and financial assistance opportunities — and the regulations you must comply with to claim them. Ideally, any candidate would have experience in developing and executing sustainability strategies and the capabilities to identify appropriate tax and financial assistance incentives so that your company doesn’t miss out on valuable funding opportunities.