Tax as an essential component of the ESG Framework

Tax as an essential component of the ESG Framework (2)

07 December 2023 | 5 min. readingtime

Part 2: The Intersection between ESG and Tax

Bird and Nozemack (2016) posit that a sustainable society is characterized by an efficient and fair relationship between its actors and institutions, supported by three essential "common spaces"-[1] public, regulatory, and organizational commons.[2] According to their study, these common spaces are undermined and eroded as a result of (corporate) tax avoidance practices.

Avoiding tax

Tax avoidance practices (for the term's definition, please refer to the first article covering this subject) adversely affect public commons, as they deprive governments of much-needed income for investments in jobs, education, healthcare, security, and other essential public services crucial for a resilient and well-functioning society. Moreover, tax avoidance has negative consequences for regulatory commons, potentially leading to the possible erosion of trust between tax authorities and taxpayers, resulting in the creation of more complex legislation and increased transaction costs for all market participants. Lastly, tax avoidance adversely impacts the culture of a company, referred to as organizational commons. Companies aggressively avoiding tax payments may foster a culture with less respect for laws and regulations. In this context, institutional investors, which play a pivotal role in financial markets, are highly dependent on the aforementioned common spaces for their risk exposure and financial returns.

This significant role of tax in fostering a sustainable society is underscored by numerous initiatives led by various international organizations. The following examples, though not exhaustive, add to the initiatives explored in the earlier edition on this topic.

ESG and Tax

Building upon the discussion in the initial article concerning the topic on tax and ESG, institutional investors are becoming increasingly interested in the responsible tax practices of their (potential) investee in order to evaluate investees’ exposure to certain risks (read reputational risks, governance risks or potential earning risk). The question that arises then is whether the investment practice goes as far as to give tax a prominent place within the ESG universe. Below, this question will be answered affirmatively using various examples and a plethora of different initiatives.

First, there is the recognition from the UN PRI (with more than 5,000 signatories and managing $ 121.3 trillion) that classifies tax as an ESG issue through the publication of their report on how investors could engage with their investees on the corporate tax responsibility topic.[3]

Second, the United Nations assign an important role to responsible tax behaviour and well-functioning tax systems in achieving the Sustainable Development Goals (SDGs), also from an ESG perspective.[4]

Third, there is overwhelming support from the investment community for the reporting standard focused on corporate tax responsibility launched by the Global Reporting Initiative (GRI) in December 2019.

The GRI 207: Tax 2019 standard

The GRI 207: Tax 2019 standard responds to the growing call from various stakeholders (such as investors, Governments, and civil society organizations) for more corporate tax transparency and has identified tax matters as a material topic for sustainability reporting. The standard seeks to gain insight into organizations ‘tax practices by focusing one topic-specific disclosure on country-by-country reporting and three management approach disclosures: (i) Approach to tax; (ii) Tax governance, Control, and risk management; and (iii) Stakeholder engagement and management concerns related to tax.[5]

To complement the above-mentioned collective initiatives, the International Business Council (IBC) introduced an international framework for the reporting of material aspects of ESG and other relevant considerations for long‑term value creation at the World Economic Forum (WEF) in January 2020. These sets of core metrics and recommended disclosures are in alignment with the ESG criteria and the UN Sustainable Development Goals (SDGs). The main goal is to achieve consistency and comparability of metrics, which is now lacking due to a variety of reporting frameworks and ESG measurement techniques. The sets of metrics consist of 22 core metrics (tax reporting included) and 34 recommended metrics.[6]


In conclusion, the integration of responsible tax practices into the broader framework of Environmental, Social, and Governance (ESG) criteria is gaining momentum among institutional investors. The alignment of tax policies and practices within the ESG criteria, backed by international bodies and institutions like the UN PRI, the GRI and the IBC, reflects a commitment to transparency and sustainability with regard to companies’ tax position.

However, there are still certain gaps between current corporate tax disclosures and investors' expectations, to ensure that the latter is able to fully integrate tax issues within its ESG Framework. It is important that companies disclose detailed information on their tax governance and risk management processes, for investors to understand companies' positions on tax issues and assess tax risks in their ESG Framework. The exploration of this existing gap between current corporate tax disclosures and investors' expectations will be the focal point of the upcoming third edition on this subject.




[1] Also referred to as common resources that provide value to society.

[2] Bird, R., & Davis-Nozemack, K. (2016). Tax Avoidance as a Sustainability Problem. Journal of Business Ethics, 151, 4, 1009-1025.

[3] See

[4] See

[5] See

[6] See

  • Sustainability


This is an image of Rebwar Taha.

Rebwar Taha

Advisor Responsible Investments

Rebwar is responsible for the implementation of sustainability laws and regulations

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