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Journal of European Economic History
2026, Volume:7, Issue :2 : 538-558 doi: https://doi.org/10.61336/JEEH/26-2-42
Research Article
Financialization of Sustainability and Shadow Capitalism: ESG Signaling, Regulatory Arbitrage, and Corporate Legitimacy in the Post-BEPS Global Tax Era
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1
Assistant Professor, Amity School of Management and Commerce, Amity University Jharkhand, Ranchi
2
Assistant Professor, Finance and Accounting, Regional college of Management, Bhubaneswar, Khurdha, Odisha
3
Gen AI Research Scientist,Cloud Bridge Solutions Inc, USA,
4
Professor, Department Of Management, Teerthanker Mahaveer University, Moradabad, Uttar Pradesh,
5
Director Array Research Pvt Ltd,
Abstract

The increasing integration of Environmental, Social, and Governance (ESG) principles into global financial markets has transformed sustainability from a primarily ethical and social concern into a strategic financial asset. While ESG frameworks were originally developed to encourage responsible corporate behavior and long-term value creation, the growing financialization of sustainability has generated new concerns regarding regulatory arbitrage, symbolic compliance, and corporate legitimacy management. Simultaneously, multinational corporations continue to employ sophisticated tax planning mechanisms, profit-shifting structures, and jurisdictional optimization strategies despite global regulatory reforms such as the OECD Base Erosion and Profit Shifting (BEPS) initiative. This convergence of sustainability finance and global tax governance has given rise to a complex phenomenon characterized by ESG signaling, shadow capitalism, and legitimacy-oriented corporate behavior. This study develops a comprehensive analytical framework for examining the relationship between sustainability financialization, ESG performance disclosures, regulatory arbitrage practices, and corporate legitimacy in the post-BEPS global economy. Drawing upon institutional theory, legitimacy theory, stakeholder theory, and financialization literature, the research investigates how firms utilize ESG narratives to manage reputational risks while simultaneously engaging in aggressive tax planning and financial engineering practices. The findings suggest that ESG signaling increasingly functions as a mechanism of strategic legitimacy construction rather than purely substantive sustainability transformation. Furthermore, post-BEPS regulatory reforms have altered but not eliminated opportunities for regulatory arbitrage, resulting in the emergence of more sophisticated forms of shadow capitalism. The study contributes to contemporary debates on sustainable finance, corporate governance, and global taxation by highlighting tensions between symbolic sustainability commitments and underlying economic practices.

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