ESG Information Disclosure and Its Relationship to Tax Practices: Stakeholder‐Friendly or Legitimacy‐Seeking?

Khayria Amarna, Maria Victoria López‐Pérez, Raquel Garde Sánchez and Lázaro Rodríguez Ariza

Sustainable Development, 2025, vol. 33, issue 3, 3906-3917

Abstract: Tax laws may promote practices that lead to tax deductions or deferrals over time and that relate to corporate environmental, social, and governance (ESG) disclosures. This study analyses whether transactions that have corporate tax effects are related to tax avoidance or are a way of channeling ESG commitments. In addition, we investigate whether the firm financial situation moderates the incidence of ESG disclosure on tax practices. The results show that ESG disclosure have a positive impact on permanent tax differences, which are produced by philanthropic, among others. However, the effect of ESG disclosure on temporary differences, which can be related to tax avoidance practices, is negative. Companies committed to ESG do not engage in tax avoidance. Regarding the moderating effect of financial indicators, the results show that only profitability positively moderates the relationship between ESG disclosure and temporary tax differences. ESG disclosure could be used to hide tax avoidance practices. The findings have important implications for policymakers, supporting the creation of effective regulations that incorporate companies' tax practices into the ESG objectives. This will encourage companies to be more conscientious about their tax behaviors.

Date: 2025
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https://doi.org/10.1002/sd.3333

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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:33:y:2025:i:3:p:3906-3917

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