New research from Murdoch University has found that companies which aggressively avoid tax are also more likely to engage in “greenwashing” — exaggerating how environmentally responsible they are.

Businesses today face growing dual pressures to deliver strong financial performance while also demonstrating environmental and social responsibility.

Lead author on the study, Dr Augustine Donkor from the Murdoch Business School said in times of economic uncertainty, companies may feel pressure to cut costs and boost their social image.

“The aim of our research was to understand whether these pressures encourage some companies to rely on image rather than actually taking genuine action to improve their environmental performance,” Dr Donkor said.

“The goal was to better understand the conditions under which greenwashing is more likely to occur so that regulators, investors and companies themselves can design systems that encourage genuine sustainability and greater transparency.

“This is particularly important now as investors, consumers, and regulators increasingly rely on sustainability information when making decisions, so ensuring that information is trustworthy is critical.”

The study analysed 391 Australian Securities Exchange (ASX)-listed companies between 2019 and 2022, including the period of economic disruption caused by the COVID-19 pandemic.

Using tax, environmental, and social and governance (ESG) data, the researcher team examined the relationship between corporate tax avoidance and greenwashing.

They also investigated whether a company’s business strategy influenced this relationship.

“We found that companies engaging in more aggressive tax avoidance were more likely to use greenwashing as a way of managing their public image, particularly during periods of economic uncertainty,” Dr Donkor said.

The study also found that this link was stronger for companies utilising a “defender” business strategy .

Dr Donkor said this finding came as a surprise to the research team.

“Defender business strategies are usually quite conservative — focusing on efficiency, cost control, stability, and protecting an established market position, rather than pursuing aggressive growth or innovation.”

“We expected companies with more aggressive growth strategies to be more likely to engage in these behaviours,” he said.

“Instead, the results suggest that when defender firms see greenwashing as a relatively low-cost way to manage their reputation, they may also be more willing to engage in aggressive tax strategies during periods of financial stress.”

Dr Donkor said the findings highlighted the need for greater transparency and stronger scrutiny of both sustainability reporting and corporate tax practices.

“For policymakers, this could support more rigorous reporting standards and better verification of environmental and corporate social responsibility (CSR) claims,” he said.

“For investors, the research highlights the importance of looking beyond sustainability marketing to assess whether a company's actions match its claims.

“And for consumers, it reinforces the importance of asking whether environmental promises are supported by measurable evidence rather than attractive branding.”

The paper, Surviving Strategy: The Tax Avoidance–Greenwashing Nexus and the Moderating Role of Business Strategy, was published in the journal Business Strategy and Development.

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The research was co-authored by Dr Trisna Dwiyanti and Dr Terri Trireksani from the Murdoch Business School, and Professor Hadrian Djajadikerta from Curtin University.

Dr Donkor is a Chartered Accountant, researcher, and accounting and finance lecturer for Murdoch Business School.