Sustainability in Question: Climate Risk, Environment, Social and Governance Performance, and Tax Avoidance

Yuxuan Zhang, Leihong Yuan (), Idawati Ibrahim and Ropidah Omar
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Yuxuan Zhang: Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok 06010, Kedah Darul Aman, Malaysia
Leihong Yuan: Financial Department, Chaohu University, No. 1, Bantang Street, Hefei Chaohu Economic Development Zone, Chaohu City, Hefei 238014, China
Idawati Ibrahim: Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok 06010, Kedah Darul Aman, Malaysia
Ropidah Omar: Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok 06010, Kedah Darul Aman, Malaysia

Sustainability, 2025, vol. 17, issue 4, 1-21

Abstract: This study examines whether firm managers strategically use tax avoidance to address climate risks, with a specific focus on strategies employed to reduce corporate income tax liabilities, and this study incorporates the moderating role of ESG performance and is ground in stakeholder theory to highlight the balance between sustainability and corporate profit expectations. Using the secondary data from Chinese A-listed companies during 2017–2023, the findings reveal that firms increasingly adopt tax avoidance practices in response to rising climate risks. More specifically, strong ESG performance positively moderates this relationship, underscoring its role in shaping socially and ethically responsible strategies to tackle sustainability challenges. By employing panel data analysis and addressing endogeneity through instrumental variable tests, Propensity Score Matching, and the Heckman test, this study provides robust results. These findings contribute to the literature on tax avoidance and provide practical insights for actionable ESG initiatives. For firms, these include improving transparency in tax reporting and integrating sustainability metrics into corporate ESG framework for firms. For tax authority, they involve upgrading the tax-related big data supervision system and fostering alignment between corporate practices and government policies.

Keywords: climate risk; corporate tax avoidance; ESG performance; sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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