Sustainability incentives: What companies ought to find out about stackable funding

It is crucial now greater than ever that companies perceive methods to effectively handle their sustainability investments. The sustainability funding panorama has a plethora of recent and enhanced tax credit, loans and grants to assist companies spend money on methods that may assist them successfully attain their decarbonization, environmental and social objectives. These advantages will not be restricted to firms straight producing clear vitality — this funding is meant to drive sustainability-related funding selections for companies of all types.

The Inflation Discount Act is a current and prime instance of U.S. laws with huge funding alternatives. The legislation launched $370 billion in local weather and vitality funding by a mix of tax credit, grants, loans, and different incentives. Past the IRA, firms may obtain sustainability funding by a wide range of avenues, together with different federal, state and native authorities incentives, grants, loans, affect buyers, inexperienced banks and extra. 

Whereas firms can definitely apply for and obtain these advantages piecemeal, a extra structured strategy might enhance the quantity of tax-related and different advantages an organization can obtain. There are lots of alternatives to pair these tax advantages with different non-tax applications. 

We consult with this strategy of mixing a number of sources of sustainability incentives as “stackable” funding, which is a technique tax departments can use to assist align total enterprise selections with the corporate’s sustainability objectives. Some components to think about embody decisions round web site areas and labor {qualifications}, monetizing generated credit, and leveraging each grants and tax incentives concurrently to extend monetary help and return-on-investment for ESG-related efforts. These often-unexplored funding choices are useful to unlocking strategic funding and creating extra funding accessibility for a big selection of stakeholders, notably when paired with non-tax applications.

The brand new American-made inexperienced financial system 

For many years, a lot of the funding in sustainability efforts has been pushed by funding for conventional or non-novel applied sciences. Nevertheless, laws enacted over current years is driving a brand new wave of home funding inside the business, reminiscent of inexperienced vitality, vitality effectivity, superior manufacturing, superior fuels, semiconductor chips, batteries and extra. The broad scope of obtainable advantages is geared toward launching an economy-wide transformation to put the groundwork for a brand new, American-made inexperienced financial system.  

New legal guidelines proceed to offer methods for nontraditional buyers to play a significant function in ESG-related enterprise investments. Traditionally, tax credit-driven funding was managed by main financiers that put in place complicated tax-equity buildings, leading to a smaller group of buyers. Now, these new legal guidelines are offering mechanisms to monetize sure tax credit by transferring (i.e., promoting) the credit score to a different entity or, in restricted circumstances, electing a direct cost of the credit score in lieu of decreasing the credit-holder’s tax legal responsibility. Monetization of the credit can happen by way of a “tax credit score market” which might join credit score sellers with patrons.  

Moreover, provisions in current legislation present further or boosted funding for companies that select to make use of labor that meets prevailing wage requirements and certified apprenticeship program guidelines. By complying with these further labor necessities, firms can earn 5 instances the baseline worth of tax credit for IRA-qualified tasks. Even larger advantages can be found for finding investments in sure designated areas generally known as “Power Communities.” Qualifying for these enhanced tax credit would require ongoing monitoring and compliance to make sure all labor-related necessities are met through the construct section and after tasks turn out to be operational. 

Placing stackable funding into follow

With such a variety of choices, companies can be smart to debate the concept of stackable funding with their tax departments. To start out, CFOs and tax groups ought to have a look at what advantages could be out there for an organization’s manufacturing or manufacturing, together with these that may be mixed with current advantages. For instance, analysis and improvement incentives or expensing for capital investments which might be already on the books may very well be eligible for “stacking,” in the end enhancing returns on sustainability-related investments. For sure operations or investments, one tax incentive may very well be extra helpful to the corporate than one other incentive for which the identical operations might qualify. Tax groups ought to view and consider these a number of funding sources by the lens of firms’ bigger working and sustainability objectives to find out which funding to pursue.    

Secondly, tax groups ought to take steps to substantiate they’re making good “siting” selections, particularly in areas the place states and localities may also be offering incentives to host services or have indicated a want to drive neighborhood funding to realize environmental and clear vitality objectives. Deploying a complete strategy to capital funding might assist enhance ROI on an annual foundation by probably decreasing operational, tax and monetary prices.

Lastly, in hiring selections, a workforce that doesn’t meet sure wage and apprenticeship necessities may end result within the lack of important funding when it comes time to calculate the tax invoice. Corporations ought to rigorously analyze hiring selections, money flows and ROI to judge whether or not securing and monetizing tax credit within the short-term is a extra economically resourceful possibility to realize medium and long-term sustainability objectives. 

Making good use of the ample funding alternatives out there to assist construct sustainable vitality infrastructure, provide chains and economies will proceed to be a prime precedence for companies. As this panorama grows more and more complicated, prioritizing the worth tax can carry might be important to firms searching for to avail themselves of obtainable sustainable funding alternatives.