Corporate Sustainability and Tax Burden: An Empirical Analysis of the Relationship Between Sustainability Performance and Effective Tax Rates

This study examines whether stronger corporate sustainability, measured by ESG (environmental, social and governance) scores, is associated with lower effective tax rates ( ETRs ) among large European firms. It also tests the moderating role of the COVID ‐19 pandemic. Panel data for 39 non‐financial firms listed on the Euro Stoxx 50 index (2018–2022) were analysed using Thomson Reuters Eikon data. The main specification relies on pooled OLS with heteroskedasticity‐robust standard errors clustered at the firm level, while fixed‐effects and random‐effects models are used as robustness checks. Results show a significant negative relationship between ESG scores and ETRs , suggesting firms with higher sustainability tend to bear a lower tax burden. In the main specification, this link weakened during the pandemic, although the moderating effect is sensitive to alternative COVID ‐19 codings, indicating crisis conditions may affect the ESG –tax relationship. The study contributes by examining an exogenous shock as a moderating factor. Findings offer insights for tax managers and policymakers aiming to align sustainability with tax strategies and promote responsible behaviour through tax policy.