30 April 2026
Rethinking Fiscal Policy to Reward Impact
When social and environmental costs are fully accounted for, the combined €209 billion in profits of Europe’s 20 largest companies would turn into a net loss of €19 billion, according to our recent True Profit Assessment Report. The conclusion is clear. Europe’s current market rules still reward companies for externalising harm, leaving businesses that cut emissions, invest in circular production, strengthen value chains, and improve social outcomes often compete at a disadvantage in a market that still rewards the lowest price, not the highest positive impact. For Europe to be truly resilient and competitive, it must make impact profitable. This is a problem fiscal policy can help solve. The True Profits Initiative provides a compass address this issue through specifically rethinking fiscal policy to reward impact.
Fiscal policy as a tool for rewarding impact
Over the past years, Europe has made major progress on transparency. Building from the progress made with CSRD and CSDDD, companies increasingly report their impacts on climate, nature, and society. But reporting alone does not change market outcomes. Businesses that invest in decarbonisation, fairer supply chains, or resource efficiency still face higher upfront costs, while competitors can continue to externalise harm and still win in the market. As long as this remains possible, we are penalising many of the very companies Europe needs most.
This is an issue of competitiveness. Europe is operating in a world of increasing geopolitical tension, price volatility, and exposed supply chains. Electrification, clean industry, and lower resource dependence make countries less exposed and more resilient. Spain’s decade-long investment in renewables has strengthened its resilience to energy shocks, such as the temporary closure of the Strait of Hormuz. During the recent crisis, wholesale electricity prices averaged €52 per MWh, around half the level in Germany and the UK, and one-third of Italy’s. Yet firms investing in these directions are still too rarely rewarded in the market.
Fiscal policy as a tool for rewarding impact
That is why we need to move from reporting to rewards, and use fiscal policy as a tool for change. Today, business taxation largely treats all profit the same, regardless of how it is made. But not all profits are equal. Some are created by generating value for society and protecting nature, while others depend on shifting costs onto people, nature, and future generations. Fiscal policy should start to reflect that difference.
One pathway is to use existing reporting data as a means for change, rather than an end in and of itself, as it is now. As corporate impact disclosure improves, governments can begin linking fiscal incentives to companies’ impact performance. A True Profit Tax, based on sustainability disclosures under the Corporate Sustainability Reporting Directive (CSRD), would create differentiated corporate income tax rates according to a company’s net positive or negative impact profile. Firms demonstrating net positive societal contributions would benefit from favourable rates, while those generating significant unmitigated harm would face higher fiscal burdens. Such a mechanism transforms disclosure into a fiscal tool to incentivise impact.
Moreover, impact border tariffs on key externalities could be developed. Similar to the Carbon Border Adjustment Mechanism (CBAM) but expanding beyond carbon, it could cover, for instance, biodiversity loss, material use and pollution. This creates a fairer competition, which incentivises businesses to achieve the highest positive impact, while also preventing the outsourcing of harmful production to less-regulated markets (impact leakage).
Specific impact levies, such as levies on material extraction, pollution, or ecosystem degradation, would be another way to directly internalise environmental and social costs into market prices, thereby also encouraging product and process innovation towards delivering positive impact.
Together, these mechanisms shift incentives so that the companies creating long-term value are no longer at a disadvantage. We also exploit the full potential of fiscal reform, as a tool for long-term competitiveness and resilience, rather than solely a revenue tool. Well-designed reform can also improve fairness. Revenues from externality pricing can be recycled to households, used to lower taxes on labour, or support sectors in transition. That makes reform not only greener, but more socially and politically durable.
The evidence and support for change is already here
We already know that well-designed fiscal policy can drive the market shifts needed for a sustainable transition. Norway’s long-running tax exemptions for electric vehicles, combined with high taxes on more polluting cars, helped make EVs the rational consumer choice. By 2025, fully electric cars accounted for 95.9% of new passenger car sales in Norway, and more than 30% of all cars on the road were fully electric The policy was even phased out in October 2025 as the goal had been reached.
At the same time, business is also increasingly becoming a voice for consistent and robust fiscal policy. Yara, one of Europe’s biggest fertiliser producers, has warned that weakening the EU’s carbon border mechanism would undermine the business case for its low-carbon ammonia investment, and that CBAM is the “key enabler” of their green business case, and that transitioning must be profitable. In other words, sustainability and impact need rules that reward them to be able to scale.
These different examples show what happens when we create the business case for impact: when impact is priced and rewarded, markets react. And this is exactly the direction Europe should now take further. Fiscal policy should not simply raise revenue. It should reward the companies that reduce societal costs, strengthen economic and environmental resilience, and build long-term prosperity. That is how we build resilience and competitiveness, by making the most impactful companies the most competitive ones. And fiscal policy must become a key tool in this endeavour.
The True Profit Alliance
The True Profit Alliance brings together organisations committed to making impact profitable by aligning market incentives with long-term societal value creation. Through shared insights, practical collaboration and collective advocacy, members help shape the business case for transformation while staying at the forefront of developments in True Profits. Interested in working on making impact profitable?
