An Exploration of Corporate Tax Avoidance from the Perspective of Environmental, Social, and Governance (ESG) Performance

Abstract

This research aims to analyze the influence of environmental, social, and governance (ESG) performance on corporate tax avoidance. While companies may engage in tax avoidance to minimize their tax burden, they are also expected to demonstrate accountability to stakeholders, including through the disclosure of their environmental, social, and governance performance. This study uses companies listed by the Bumi Global Karbon (BGK) Foundation as the research objects, with a total of 263 firm-year observations for the 2020–2023 period. The data analysis technique used is static panel data regression, with the random effects model selected as the best-fit model. The results of the study show that environmental performance increases tax avoidance practices, while companies with strong governance performance and aggregate ESG performance are less likely to engage in tax avoidance. This study provides novelty by showing that each ESG dimension has a different influence on tax avoidance practices. This finding suggests that corporate sustainability commitments do not always result in a decrease in tax avoidance, especially in the environmental dimension. The results of this study enrich the existing literature on the relationship between ESG and tax avoidance, especially in the context of companies listed in the BGK Foundation index.