ESG, Taxes, and Profitability of Insurers

Abstract

The growing concerns about sustainability urge insurance companies to implement Environmental, Social, and Governance (ESG) policies in order to remain competitive. All the three dimensions of corporate sustainability involve taxation; therefore, it is important to establish if this association reflects on financial performance. Our analysis of worldwide property and casualty (P&C) insurers during 2013–2022 reveals that high ESG insurers pay more taxes, while they are less profitable compared to low ESG insurers. This pattern is confirmed using instrumental variable regressions and simultaneous equations systems. We argue that sustainable insurers are less tempted to avoid taxes and do not shift their tax burdens onto policyholders and investors. However, the interplay between taxes and sustainability seems to harm insurers’ profitability, potentially having negative effects on investment and economic growth. This is an important insight for tax authorities and insurance managers.