New research from Australia suggests that companies that aggressively reduce their tax obligations may also be more likely to overstate their environmental performance.
The finding suggests some businesses may be polishing their public image while sidestepping obligations that help fund the public services communities rely on.
What's happening?
Researchers at Murdoch University analyzed tax liability records alongside ESG disclosures from 391 companies listed on the Australian Securities Exchange between 2019 and 2022, during the economic turmoil of the COVID-19 pandemic.
As Sustainability Online reported, the study found that companies using aggressive tax avoidance strategies were more likely to engage in greenwashing, or overstating their environmental credentials.
Lead author Dr. Augustine Donkor of Murdoch Business School said the researchers were trying to determine whether pressure during uncertain periods leads some companies to focus on appearances rather than real progress.
The link was strongest among companies using a so-called "defender" strategy, which refers to businesses focused on efficiency, cost control, stability, and the protection of their existing market position.
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That result surprised the researchers.
"We expected companies with more aggressive growth strategies to be more likely to engage in these behaviours," Donkor said, per Sustainability Online.
Why does it matter?
Greenwashing can make it harder to tell which companies are actually reducing pollution and which are simply improving their marketing.
That confusion can shape what consumers buy, where they invest, and which businesses they decide to trust.
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Tax avoidance adds another layer of concern. When large companies aggressively reduce what they owe, governments may be left with less revenue for services communities depend on, including infrastructure, schools, and public programs.
If those same companies are also exaggerating their sustainability efforts, consumers may be misled twice: once through environmental claims and again through the broader public costs tied to lost tax revenue.
Sustainability claims are becoming more influential. Investors, shoppers, and regulators are increasingly using ESG and corporate responsibility disclosures to guide their decisions.
If those disclosures are unreliable, markets can be distorted, and companies that spend more on image management than on actual environmental improvements may be rewarded.
What's being done?
The study's authors said the findings point to the need for tighter oversight of sustainability reporting and corporate tax practices.
In practical terms, that could mean stricter disclosure rules, stronger verification of environmental claims, and closer scrutiny from regulators and investors.
Donkor also said the link between tax avoidance and greenwashing became clearer during periods of financial stress.
If businesses view reputation management as a low-cost substitute for real action, stronger reporting standards could make that strategy harder to pursue.
"The goal was to better understand the conditions under which greenwashing is more likely to occur, so that regulators, investors and companies themselves can design systems that encourage genuine sustainability and greater transparency," Donkor said.
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