SUBSTITUTIVE VERSUS COMPLEMENTARY RELATIONSHIP BETWEEN ESG AND TAX AVOIDANCE: A SYSTEMATIC LITERATURE REVIEW (2016–2025)
DOI:
https://doi.org/10.47491/landjournal.v7i2.4818Keywords:
ESG, tax avoidance, legitimacy, stakeholdersAbstract
ESG has increasingly attracted the attention of investors, regulators, and the public, while corporate tax practices are viewed as part of governance accountability and a company’s contribution to society. The publication of GRI 2017: Tax has strengthened calls for tax transparency within sustainability agendas. However, empirical evidence remains mixed as to whether ESG constrains tax avoidance or moves in the same direction as tax avoidance. This study aims to disentangle the substitutive versus complementary dynamics between ESG and tax avoidance and to identify the conditions that shape the direction of this relationship. The study employs a Systematic Literature Review using a descriptive qualitative approach and the PRISMA technique. The literature search was conducted via Publish or Perish (Scopus-based) using the keywords “ESG” and “Tax Avoidance.” The synthesis indicates that most studies support a substitutive pattern, whereby higher ESG is associated with lower tax avoidance through stakeholder pressure, reputational risk, and stronger governance. Complementary patterns also emerge in certain contexts, particularly when ESG functions as a legitimacy strategy/reputational buffer or when tax avoidance serves as an economic channel mediating long-term value creation. This paper contributes by proposing a typology of findings and key contingencies. Policy recommendations emphasize strengthening tax governance and tax transparency to assess and enhance the consistency between ESG claims and corporate tax behavior.
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