ESG Investing: How Corporate Tax Avoidance Affects Corporate Governance & ESG Analysis

Abstract

Environmental, Social, and Governance (ESG) investing is arguably the most popular and fastest growing investment strategy of the twenty-first century. This rise in sustainable investing has coincided with an increasing scrutiny of companies that utilize aggressive tax avoidance strategies. In response to this growing scrutiny, ESG rating agencies and institutional investors have penalized companies that pursue these strategies, although the direct effect that these strategies have on ESG scores and analysis remains empirically unclear. First, this paper explains the history of and surge in ESG investing and its place in today’s markets. Second, it details one of the most prominent aggressive tax avoidance strategies used by U.S. corporations — the “Double Irish, Dutch Sandwich.” With the recent closure of this strategy via tax reform, this paper examines the past use of the Double Irish, as well as the replacement strategies employed by large U.S. technology firms, such as the “Single Malt” and the “Green Jersey” strategies. Finally, this paper explores the negative effects that aggressive tax avoidance may have on a company in a time when socially conscious investing is at an all-time high.

Keywords: ESG, Sustainable Investing, International Tax Law, Taxation, Big Tech, Double Irish, Dutch Sandwich, Single Malt, Green Jersey