Over the course of the pandemic, you could be forgiven for not paying close attention to a number of legislative changes and regulations that have been brought through by the government and European Commission. Terms like ‘Fit for 55’, ‘Green Deal’, ‘ESG’, ‘CSRD’, ‘Climate Action Plan’ and many more may have registered in your consciousness.
What may not have registered is the immediacy of the challenge and how this will impact upon how we do business and live our lives.
Change and investment is required
While the initial focus for a lot of businesses has been on putting reporting structures in place to ensure compliance with new Corporate Sustainability Reporting Directive (CSRD) requirements, there is a need for significant investment and innovation to reduce greenhouse gas (GHG) output.
Ireland has committed to radically reducing its GHG emissions. Legislation commits to a 51% reduction in GHGs by 2030, less than 10 years. The next milestone of net zero emissions by 2050 will require further evolution in technology. To achieve such a transformation will require change in the behaviours of each industry, business and person in Ireland.
Some progress can be made through gaining efficiencies and investing in existing technologies that are more environmentally friendly. But if we are to eventually reach these targets, real change is required, this will require considerable time and financial investment and will not be possible without innovation.
Businesses may have already taken the first steps on its sustainability journey, setting out a strategy, raising corporate awareness and making immediate changes in its operations. But the likelihood is, that for these businesses this will not be sufficient to achieve the target reduction in emissions.
For many, achieving these targets will require a programme of investment. Such businesses may be uncertain how climate neutrality will be achieved, the one certainty is that it is likely to involve considerable financial cost.
Capital investment in new energy efficient technologies, buildings and infrastructures will be needed. Investment in the sustainability of the supply chain. Investment in operations to develop new sustainable working processes and R&D to develop new and reformulate products.
Role of tax to meet company climate targets
Legislators have an armoury of incentives and deterrents to effect behavioural change. As we move closer to key deadlines such as 2030, it is likely that we will see increasing use of deterrents. Levels of indirect taxation for environmental resources such as carbons and plastics will increase over time. The economic viability of the status quo will come under increasing pressure, those failing to evolve and adapt their current practices will face ever increasing costs.
There is no simple solution and businesses must change technologies and adapt processes. To assist in this, a range of incentives exist. They are available from multiple sources, from various state agencies and from the EU. The most attractive of which are available to those who innovate.
Determining which incentives are most relevant and achievable can be a complex, but highly rewarding task. Identifying suitable projects and understanding what works best for your business will be key. EU grants will typically involve an open call and a requirement for cross-border collaboration among a number of participants. The application process is demanding and while there may be a low chance of success in securing funding, the benefits in terms of funding rates, volume and access to a European wide network can outweigh this.
Sustainability focused grants are available through a variety of government departments, such as SEAI, EPA, Department of Environment, Climate and Communications and others. The IDA and Enterprise Ireland’s ‘Go Green’ offering includes a range of incentives focused solely on sustainability, but existing innovation incentives must also be considered through the lens of sustainability.
Sustainability as a driver of innovation
We have set out that new regulations are going to add significant constraints going forward, that investment and change will be required. New technologies and processes will need to be developed and integrated. Adoption of existing best practice and simple replacement of equipment with existing technology will not enable the targets to be met. These statements align with the OECD Frascati definition of R&D, which form the basis of the science test in the R&D tax credit and the technological criteria for RD&I grants from state bodies.
Sustainability must be a key driver of innovation in the immediate future. Therefore, before embarking on a sustainability project it is critical to assess its potential to qualify for R&D tax credits and potential RD&I and other grants.
As leaders of industry, you have the opportunity to leverage the incentives readily available, to accelerate change and significantly reduce your businesses investment requirement and risk against future climate related penalties.
Brian McDonnell
Senior manager, Deloitte Ireland
