Study links community climate beliefs to corporate tax strategies
New research from the Schulich School of Business shows that where a company is headquartered can play an important role in shaping its approach to sustainability investments and corporate tax strategies.
The study, “Climate Beliefs and Attitudes and Corporate Tax Savings,” published in the Journal of Business Ethics, finds that companies located in communities with strong climate beliefs and attitudes are significantly more likely to reduce their tax payments by taking advantage of climate-related tax incentives tied to environmental investments.
The research was co-authored by Kiridaran (Giri) Kanagaretnam, Professor of Accounting and Ron Binns Chair in Financial Reporting, Banking and Governance at Schulich, and Lei Zhang, Assistant Professor of Accounting at the International Business School Suzhou (IBSS), Xi’an Jiaotong-Liverpool University (XJTLU).
The authors found that firms headquartered in counties with strong climate beliefs and attitudes are more likely to increase spending on climate-related research and development and environmental initiatives. These investments often qualify for tax credits that lower companies’ overall tax burden.
“Our findings suggest that community attitudes toward climate change can influence corporate decision-making in meaningful ways,” said Professor Kanagaretnam. “Firms located in areas where climate concerns are stronger are more likely to invest in sustainability initiatives – and those investments often qualify for tax incentives that reduce their tax payments.”
According to the study, this relationship is particularly strong for firms operating in climate-vulnerable industries and for companies located in states with formal climate action plans.
“Companies are responding to both social expectations and financial incentives,” Kanagaretnam explained. “Climate-related tax credits encourage firms to invest in green technologies and environmental initiatives, but they also reduce public tax revenues that governments rely on to fund broader climate action.”
The researchers describe this dynamic as a potential business ethics paradox and highlight the importance of aligning tax policy with long-term climate goals.
“Our research highlights the importance of aligning financial incentives with long-term climate goals,” Kanagaretnam said. “If tax incentives are structured effectively – and if companies reinvest those savings into meaningful environmental action – they can help advance both corporate and societal objectives.”
Professor Kanagaretnam discusses the research findings in more detail on a recent Research @ Schulich podcast.
