Why do we use incentives? We use them to achieve our economic development goals. Increasing numbers of countries and communities have ambitious plans to reach specific sustainable development goals (SDGs). Tax incentives can be harnessed to support those efforts and document progress toward realizing sustainable development.
Many tax incentives are already designed to support activity that is aligned with sustainable development goals. Incentives are expected to support decent work and economic growth. They are frequently used to build resilient infrastructure, foster innovation, and promote specific industries. Many incentives encourage investment that supports environmental objectives. They increasingly strive to incentivize activity that will improve the physical spaces within our cities and reduce income inequalities.
Leaders can make the connection between tax incentives and sustainable development more explicit. Practitioners can review their portfolio of incentive offerings and identify specific elements of each program that either are or could be aligned with sustainable development priorities. Engaging in this process will also reveal gaps in program offerings that should be filled to better match economic and sustainability objectives.
Articulating the exact ways that incentive programs support sustainability goals is helpful to both the investor and the host location striving to improve sustainability performance.
Prioritize through process
Incentive effectiveness depends on good program design and effective implementation. Process affects results. Good internal procedures can reduce risk, focus resources on the best opportunities, and ultimately achieve better outcomes.
Tax incentive management procedures should be analyzed and updated to make sure they encourage projects that fit with the country’s or community’s sustainable development goals.
One of the simplest steps is to review the approval process for granting incentives. Are the eligibility requirements consistent with sustainable development goals? Is there a project scoring mechanism to identify the highest quality investments that are aligned with national or local priorities? Does the award procedure include a contract committing the investor to specific milestones associated with sustainable development? What changes should be made as a result of the review?
Measure what matters
SDG goals and metrics can be incorporated into incentive accountability reporting. Each SDG has defined metrics that can be adopted or adapted to local needs. Many of these metrics will look familiar to economic development and investment facilitation practitioners, and they can help track progress on individual incentivized investments. These same metrics can form the foundation of either internal or public reporting on sustainability outcomes associated with tax incentive use.
Tax incentives can help countries and communities reach their sustainable development goals (SDGs). Leaders can modify current incentive practices to make meaningful progress and to ensure that incentives are managed properly with sustainability goals in mind.