Planet, People, Profit – and Paying Taxes? Sustainable Institutional Investors and Corporate Tax Avoidance

I investigate whether sustainable institutional investors influence their investee firms’ corporate tax avoidance. My results suggest that higher sustainable institutional ownership mitigates the tax avoidance of investee firms. In contrast, the level of ownership by non-sustainable institutional investors is positively associated with tax avoidance. Further analyses reveal that the effect of sustainable institutional ownership on investees’ tax behavior has developed over time, concurrently with recent developments that have promoted tax as an environmental, social, and governance (and thus sustainability) component. Cross-sectional tests examine the heterogeneity in different characteristics of this investor type and the relevance of ownership concentration. My findings suggest that sustainable institutional investors are a distinct group of corporate owners that plays a role in curbing firms’ tax avoidance and that efforts that support the integration of tax responsibility into sustainable finance can foster this impact