India Inc concerned about CBAM's impact on supply chain: PwC study

Half of companies surveyed in the PwC study say they are actively taking steps to reduce carbon footprint and align with environmental sustainability goals

Carbon taxes in various jurisdictions are likely to impact their supply chain, 67 per cent of the respondents surveyed in PwC’s tax transparency in ESG study said.

The study said carbon taxes, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), will require companies to proactively assess their implications across different jurisdictions, including potential cost increases, compliance requirements, and shifts in consumer behaviour.

CBAM aims to set a fair price on the carbon emitted during the production of energy-intensive products, like iron, steel, cement, fertilisers, and aluminium, entering the EU.

The carbon tax will come into effect from January 1, 2026. During the trial period, which started on October 1, 2023, companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products, have to share emissions data with the EU.

 

Half of the companies surveyed had made net-zero commitments and were actively taking steps towards reducing their carbon footprint and aligning with environmental sustainability goals (ESG). Of these, 48 per cent aimed to achieve net-zero emissions 

by 2030.

The PwC survey said businesses should consider implementing digital solutions for strategically assessing carbon emissions and managing related tax incentives in order to achieve long-term cost advantages. “By taking a proactive stance, businesses can reduce risks and take advantage of opportunities presented by changing carbon tax regimes.”

However, 59 per cent of participants believe there is a need for policymakers to incentivise ESG practices. Thirty-four per cent of respondents said combining environmental taxes and incentives can help implement sustainable practices.

“Such policies can provide the necessary impetus for companies to prioritise ESG investments, foster responsible tax conduct, and pace climate change mitigation and adaptation, as well as contribute towards sustainable economic development,” the PwC report said.

The net-zero or decarbonisation commitment of companies refers to their pledge to reduce their greenhouse gas emissions as much as possible and to remove the balance emissions through nature-based solutions or carbon capture and storage.

India has set a goal of generating around 50 per cent of its installed electric power capacity from non-fossil fuel-based energy resources by 2030.

According to the survey, there is room for improvement in tax transparency-related practices as 75 per cent of respondents said they did not have a publishable tax transparency report.

“The intrinsic link between tax transparency and ESG principles is becoming evident. Indian businesses are recognising the importance of integrating tax considerations into their sustainability strategies, demonstrating a commitment to responsible corporate conduct and societal contribution,” Sambitosh Mohapatra, ESG leader at PwC India, said.

The study found that there is a growing interest among stakeholders, particularly shareholders and regulators, in tax transparency practices as an important aspect of responsible corporate behaviour. Over 70 per cent of participants feel shareholders and regulators are interested in tax transparency practices of a company.

The survey found that 48 per cent of businesses plan to do voluntary tax transparency in the next three years through disclosure of total tax contribution. The survey includes insights from 250 senior executives across a variety of industries in India.