Environmental protection tax law and corporate ESG decoupling: evidence from China

China implemented the Environmental Protection Tax Law (ETAX) in 2018, aiming to curb pollution through economic means, but its impact on the true ESG performance of firms is unclear. Existing research focuses on corporate ESG performance and ignores possible strategic ESG behaviours. We hypothesize that the ETAX will inhibit ESG decoupling of high-polluting firms, especially the ‘greenwashing’ behaviour, and media monitoring will strengthen this effect. Based on data from listed companies in China’s manufacturing and heavily-polluting industries from 2015 to 2021, the policy effect of the ETAX is assessed using the difference-in-differences method. The study finds that the ETAX significantly reduces the ESG decoupling of high-pollution firms and has a stronger inhibiting effect on ‘greenwashing’ than ‘brownwashing’. The ETAX significantly reduces decoupling in the social and governance dimensions, but its impact on environmental decoupling is not significant. Media attention further amplifies the governance effect of the ETAX. This study reveals the effectiveness of environmental tax regulations on corporate ESG behaviour, and provides empirical evidence for policy makers to optimize environmental regulation.