Environment: The colour of money

Companies can find taxing reasons to go green.

There’s no flashy marketing campaign to inform businesses, but a little digging through Canada’s morass of tax laws and government programs reveals several financial incentives for committing to the environment. “These are well-kept secrets,” says Valerie Chort, national leader of the corporate responsibility and sustainability practice at Deloitte.

For instance, the Scientific Research and Experimental Development program offers tax credits to firms in any sector that are researching sustainable ways of operating. Private companies could claim 35% for the first $2 million of expenses in an energy-saving R&D project under the federal program, and 20% above that amount. Many provinces have complementary programs that contain additional credits up to 37.5%. “It’s one of the best programs of its kind in the world,” says John Ruffolo, global tax leader at Deloitte.

Going green is also appealing from a capital writeoff standpoint, since many clean energy-generating technologies have faster depreciation rates than traditional capital equipment. “It continues to be quite lucrative,” says Ruffolo. Other capital tax rewards vary across the country. A Nova Scotia tax credit implemented in 2006 lets corporations claim 25% of their capital investments in energy efficiency or renewable energy. A similar Manitoba credit established in 2007 allows both buyers and manufacturers of green-energy equipment to claim 10% of the cost.

Meanwhile, Ontario-based companies established within the next four years that commercialize intellectual property related to clean technology will be tax exempt for 10 years. And under B.C.’s penalizing approach, businesses will keep $30 for every tonne of carbon they cut back on by 2012.

Aside from tax savings, there are also environment grants and funds from the government and other organizations. For example, Natural Resources Canada chips in 25% of the cost of projects that make buildings more energy efficient under the EcoEnergy Retrofit Incentive. Another program, the Sustainable Development Technology Fund, provides money for clean-tech projects. “These types of grants and incentives help companies build the business case and increase the return on that investment,” says Chort.

If saving money isn’t convincing enough, maybe the call for a closer eye on the financial impact of environmental concerns is. The Ontario Securities Commission recently urged companies listed on the Toronto Stock Exchange to step up disclosure of their financial exposure to environmental risks. The Canada Pension Plan Investment Board also promotes transparency in this area, arguing that environmental factors can affect the risk and return of investments, and that when managed well, they can bolster a company’s financial results.

Maybe the greens deserve a spot on the balance sheet after all.