Environmental Taxation and ESG: Silent Partners

Environmental, social and governance (ESG) perspectives have rapidly gathered speed and global reach over the past several years. Although often motivated by the desire to improve investor decision-making, ESG perspectives can also represent a broader ethic and understanding of the need for societal changes. This chapter focuses on the “E,” or environmental, pillar of ESG. It explores the relationship between environmental taxation and the ESG environmental pillar. In working toward environmental protection, both share common characteristics. As environmental protection policies, they operate alongside but outside of traditional, environmental command-and-control regulations. They both send a strong educational signal that can influence behaviour in environmentally positive ways. At the same time, they play very different but symbiotic roles. For example, environmental taxation instruments that effectively change behaviour allow the private sector to show more positive results when they disclose ESG data on a voluntary or compulsory basis. Conversely, ESG programs may help policymakers develop stronger environmental taxation policies and build support for market-based environmental protection instruments. Drawing on selected current ESG developments in the United States and European Union, the chapter presents the relationship between environmental taxation and ESG as a silent partnership. The public ESG spotlight often places disclosures centre front, but the more nuanced relationship between environmental taxation and ESG principles works quietly in the background. The chapter considers how this potential relationship—the silent partnership—may have the capacity to improve environmental protection.