A Canonical correlation analysis on the relation of environmental, social, governance (ESG) on business environment (paying taxes) in South China

Growing concerns about sustainability have led investors and regulators to require more initiative and disclosures around Environmental, Social, and Governance (ESG). While numerous studies have been conducted on corporate performance and ESG, not much is known about these regulations and disclosures' impact on the broader business environment. The research objective of this study was to better understand the relationships between ESG and the business environment. Based on survey data conducted in South China in 2022, this study employs Canonical Correlation Analysis (CCA) to investigate the relationship between perceptions of ESG and perceptions of the business environment (paying taxes). The results show that there was a strong relationship between the perception of ESG aspects and the perception of the business environment (paying taxes). The results show there is a stronger emphasis on aspects related to local community issues as opposed to ESG aspects of Global and regional implications, supporting legitimacy and stakeholder theories. Moreover, there was seen to be a higher emphasis on tax areas that directly impacted the company. These findings add an important understanding of the relationship between ESG and the business environment. Authorities can use this understanding to target resources on improving these ESG aspects that have a corresponding improvement to the business environment (paying taxes). Given that these items pertain more to localized concerns, the findings suggest that local authorities are well-positioned to shape ESG engagement and business environment satisfaction, especially in relation to tax compliance, through localized initiatives and partnerships with business associations.