How ready are European businesses for the EU Green Deal?
PwC asked nearly 300 businesses from 13 EU countries if, and how, they were preparing for the European Green Deal. The survey demonstrates that there is still a long way to go, as Evi Geerts and Jean-Philippe Van West explain.
The growing awareness of global climate challenges and their consequences across societies is a call for action. As a result, European decision-makers introduced the Green Deal: a master plan which aims to transform Europe into the first climate-neutral continent. Numerous initiatives are being taken to reduce greenhouse gas (GHG) emissions and to adapt value chains to move towards more sustainable and climate-resilient processes. Launched in December 2019, the EU Green Deal is slowly but surely modifying the business landscape.
PwC’s European Green Deal survey
All sectors and all practices are being impacted, from tax and finance to operations, supply chains, human resources, and marketing. The Fit for 55 package released by the European Commission in July 2021 provides for a strengthened and enlarged legal, tax, and normative framework.
The package seeks to reduce EU-based GHG emissions by 55% by 2030. It is the first step towards carbon neutrality in 2050. In total, the EU legislative train is composed of more than 100 initiatives.
In this context, PwC performed a survey to assess EU-based businesses’ familiarity with the European Green Deal. The survey targeted businesses with an annual turnover exceeding €50 million ($55 million) across several EU member states, but also businesses in Norway, Switzerland, and the UK.
Among the respondents, 75% were industrial actors, retailers, transporters, and technology developers who have a major role to play in the green transition. The people PwC contacted within these businesses were senior decision-makers such as C-suite leaders, heads of tax, heads of operations, and sustainability managers.
The most interesting findings
The key finding from the PwC survey is that fewer than half of the businesses said they were prepared for the EU Green Deal. In general, larger groups with in-house tax and finance specialists, sustainability departments, and well-sourced research and development (R&D) groups were more aware and prepared for these new challenges.
However, there were still many large groups that were only just starting to get to grips with the impact of the Green Deal. A lack of awareness, lack of organisational skills, and the difficulty of quantifying the costs of Green Deal levies were perceived as the largest challenges by those surveyed.
Interestingly, almost 70% of the participants declared that they had already begun initiatives and engaged in significant capital expenditures in the environmental space, with a focus on issues such as energy and waste management. However, most of these investments were made on an ‘ad-hoc basis’, rather than part of a bigger plan.
The survey respondents stated that they wanted to facilitate the active reduction of emissions further by consuming more clean energy (78% of companies), reducing energy consumption (60%), reducing waste and plastic use (59%), and cutting carbon emissions (59%).
From a tax point of view, the survey also brings its share of surprises. Not only is the revision of energy taxes fostering the development of sustainable renewable energies, but the European Emissions Trading System (ETS) and carbon tax is impacting an increasing number of companies. This is because new sectors are being included under the scheme, such as maritime transport, road transport, and the building sector.
Add to that the proposal for the introduction of a complementary Carbon Border Adjustment Mechanism (CBAM) announced for 2026, with a compliance impact from as early as 2023, and it becomes crystal clear that the European carbon tax framework is about to turn carbon emissions into a strategic liability for companies, impacting value chains either directly or indirectly.
This explains why almost half of respondents were considering re-mapping their geographical presence with a strong focus on repatriating within EU borders. The main rationale behind this was to reduce the supply chain carbon footprint. Road and maritime transport are still the main modes of transport. More than 70% of respondents said they relied mostly on road transport.
The impact and future for European businesses
PwC’s survey shows the challenges that executives face when getting to grips with the regulatory impact of the EU Green Deal and its various tax aspects. A key takeaway here is that businesses need to build up their capability, knowledge, and communication channels to assess the impact and transform their operations.
For tax practitioners, properly monitoring these taxes will be key as their impact is above the line and directly hits the profitability of companies. The tax practitioner’s role is gaining a strategic dimension that is not to be neglected. So yes, tax, and especially environmental tax, has a role to play within the environmental, social, and governance (ESG) transformation journey.
More details about the survey, powered by PwC, can be found on the website.
Jean-Philippe Van West
Senior counsel, PwC