The Missing “T” in ESG

In a recent paper, we argue that amidst the enthusiasm about ESG, a critical parameter has gone virtually unnoticed: corporate tax behavior. The payment of corporate taxes is a powerful indicator of how a company views its role in society and supports the communities in which it operates and the stakeholders with whom it engages. Corporate taxes are fundamental to the provision of public goods. They can fuel vital government initiatives, including sustainable governmental initiatives that benefit society, such as environmentally friendly projects, education, welfare, etc.

One would therefore expect corporate tax behavior, particularly the payment of corporate taxes, to be a crucial component within the ESG framework. Reality, however, is a far cry from this ideal. Focusing on the three dominant market actors in the ESG landscape—ESG rating agencies, institutional investors, and public corporations—we identify a glaring gap between the ESG ratings of corporations and their payment of corporate taxes.

Source: The Missing “T” in ESG