Author: Moshe Silberman
Executive Summary
This article introduces two new metrics - Fiscal Alignment Ratio and Value Alignment Index - to address a key gap in Impact investing and ESG investing: the role of taxation and the state as a fiscal partner in corporate impact. The Fiscal Alignment Ratio measures how closely a company’s tax payments match the locations where its economic value is actually created, revealing whether profits are being shifted away from the communities that generate them. The Value Alignment Index evaluates whether the countries benefiting from a company’s taxes share the values the company claims to promote, such as human rights or sustainability. Together, these metrics provide a deeper, more ethical assessment of corporate impact by considering not just products and services, but also where profits flow and who ultimately benefits from them. The article calls for greater transparency, including public disclosure of Country-by-Country tax reports, to ensure that impact investing truly supports the values and communities it intends to serve.
My name is Moshe Silberman. I am a Law and Accounting dual-degree student at the Hebrew University of Jerusalem, and part of the founding team of MAAYAN Fund – Israel’s first student-led impact venture capital fund. I also work in the International Tax Division at the Israeli Tax Authority, in the Corporate Valuation and Business Restructuring Department, where I focus on corporate valuations, cross-border transactions, and post-M&A structuring for multinational corporations.
This paper emerged from my personal experience at the intersection of theory and practice. In my work with the fund and in the field of investments, I have seen how impact investors and ESG stakeholders aim to drive positive social change, focusing on products and technology. At the same time, through my work in taxation and finance, I have seen how profits do not always reach the countries or communities where the impact occurs - and at times even finance policies that contradict the values the investment aims to promote.
As a result, I propose in this paper two new metrics - Fiscal Alignment and the Value Alignment Index - designed to help investors and researchers evaluate not only a company’s direct impact but also its profit structure, tax policy, and the identity of the states that benefit from its tax payments. My goal is to offer an additional tool for deeper moral assessment of the impact we seek to create, without dismissing global complexity or legitimate corporate structures.
Part A: The ESG Blind Spot – The Missing Fiscal Dimension
In recent decades, ESG (Environmental, Social, and Governance) frameworks and the rise of impact investing have transformed the global understanding of corporate responsibility. The traditional model, centered on maximizing shareholder value, has evolved into a broader vision that considers the full spectrum of a corporation’s impact on its environment, employees, and communities. ESG, initially developed as a shared language for evaluating corporate responsibility, has matured into a normative framework. Companies today are expected to report on environmental performance, labor policies, community engagement, and governance standards. Investors, stock exchanges, and regulators have embedded ESG principles into mainstream financial decision-making.
Alongside ESG, impact investing has emerged as a proactive strategy. While ESG often addresses compliance with standards and mitigation of risks, impact investing demands intentionality: a clear commitment to creating positive social or environmental outcomes, with measurable targets and systematic evaluation. If ESG represents responsible adherence to external expectations, impact investing seeks to shape the future by aligning capital with purpose.
Despite these meaningful advances, both ESG and impact investing share a significant conceptual omission: taxation. Taxation is a central mechanism through which corporate profits are transformed into public goods. It funds education systems, health care, infrastructure, and social welfare. Yet tax practices are often absent from ESG assessments and receive scant attention in impact investment evaluations. This omission creates a critical blind spot: a company may achieve high ESG ratings or be celebrated as an impact leader while employing tax structures that deprive the very communities it claims to serve of essential resources.
Paying taxes is not merely a legal obligation. It is a moral act - a declaration of belonging and shared responsibility. Through tax payments, corporations contribute to the societal architecture that enables their existence: the education of their workforce, the infrastructure that supports their logistics, the health systems that sustain their employees. When companies shift profits to tax havens, they are not just minimizing costs; they are opting out of the social contract that binds business and society.
The state is not merely a regulator or supervisor of corporate conduct. It is a silent fiscal partner in every profitable venture. Each tax payment is akin to a dividend paid to the public treasury, which, unlike private shareholders, assumes no business risk but bears institutional responsibility: training future workers, maintaining infrastructure, ensuring public health, and safeguarding the environment. When corporations avoid this partnership, they weaken the foundation on which their operations depend. Therefore, any serious evaluation of corporate impact must look beyond products, services, or target audiences. It must ask: where do the profits flow? Who ultimately benefits from the value created? As long as ESG and impact investing frameworks fail to address this dimension, they offer a partial- and morally distorted- portrait of corporate responsibility.
Part B: The State as a Silent Fiscal Partner – Moral and Structural Dissonance
Discussions of corporate responsibility typically focus on visible stakeholders: employees, customers, suppliers, local communities, and the environment. Yet on the periphery lies a critical, often overlooked actor: the state. Not merely as legislator or regulator, but as a fiscal partner—one that structurally benefits from corporate profits through taxation. Despite this central role, the state is largely absent from ESG analyses and impact investment frameworks. It rarely appears in stakeholder indexes or impact strategies, even though it receives a fixed share of profits, finances public infrastructure, mitigates labor market risks, and sometimes stimulates demand.
Taxation is more than a legal obligation; it is a social declaration of partnership. It determines who benefits from corporate success, how value is distributed, and which public systems are strengthened. When companies route profits to tax havens or low-tax jurisdictions disconnected from the communities where value is created, they sever the link between their operations and societal benefit. This creates a moral dissonance: The company may appear responsible but withdraws fiscal support from the very systems that enable its impact. A vivid example illustrates this dissonance. Imagine a startup that promotes educational innovation in developing countries. It creates learning materials, partners with local communities, and appears to generate meaningful impact. But its official operations are based in a stable jurisdiction, while its revenues are recorded in a tax haven or low-tax country unrelated to its actual activities. The country where the social change occurs gains no fiscal benefit, while a distant jurisdiction, uninvolved in the effort, enjoys the public income. This is what can be called a compounded moral gap: on one hand, the company enjoys a reputation for responsibility due to its operations; on the other, it exploits legal loopholes to avoid contributing to the public resources needed to sustain and deepen that very impact.
Identifying the “just jurisdiction” for tax payments is not always simple. Companies may face legitimate barriers to registering and paying taxes where they operate: Corruption, political instability, double taxation risks, or restrictive regulations. Some firms base themselves in stable hubs to manage regional activities efficiently. Recognizing this complexity is essential; the critique is not of legal tax structures per se, but of their moral and systemic consequences.
It is also important to distinguish between direct budgetary correlation and moral alignment. In modern states, tax revenues are pooled and allocated according to diverse priorities. We cannot claim that every corporate tax dollar directly funds a particular program or injustice. However, the identity of the fiscal beneficiary still carries moral weight because national budgets as a whole reflect public values and policies. When companies publicly declare certain values but direct fiscal contributions to regimes opposing those values, an indirect but meaningful moral link is established. The problem is exacerbated by a lack of transparency. Country-by-Country (CbC) reports, designed to help tax authorities determine how profits and taxes are allocated among jurisdictions, already provide this critical data. These reports show, for example, what share of a company’s profits is linked to each relevant country. The reports are detailed, standardized, and verified through direct engagement with tax authorities. What remains is to make this information public. This does not require new infrastructure or oversight - only a commitment to transparency. Such disclosure would provide the foundation for applying the alignment metrics proposed later in this article.
Research by Daniel Hemel and Gideon Parchomovsky reinforces the urgency of this issue. They show how many companies secure high ESG ratings while paying negligible taxes - a result not of accident, but of sophisticated, legal tax planning that undermines the public systems essential to sustaining impact.[1] In this context, it is worth noting that the international Pillar 2 initiative, which aims to ensure a minimum 15% tax rate for multinationals, seeks to address part of this challenge by curbing extreme tax avoidance practices. While Pillar 2 represents progress, it does not replace the need for transparency and moral evaluation of fiscal alignment within ESG and impact investing frameworks. ESG frameworks must therefore integrate tax practices into the core of responsible business evaluation, not as a supplementary item but as a defining element of impact itself. Serious analysis must ask: who ultimately profits from corporate success, and do they reflect the values the company claims to uphold?
Part C: New Metrics for an Old Way of Thinking – Upgrading the ESG and Impact Toolkits
If we accept that a company’s tax policy is integral to its true impact, then the frameworks we use to measure impact must evolve. Today’s ESG landscape offers detailed indicators on carbon emissions, pay transparency, gender diversity, and data privacy. Yet on taxation - a core channel of corporate influence - ESG remains silent. This omission keeps ESG in the realm of self-regulation rather than transforming it into a tool for systemic change.
ESG ratings today enable companies to enjoy public legitimacy, attract investments, join designated funds, and gain a moral halo. At the same time, those same companies may route profits through tax havens, book revenues far from where value is created, and pay effective tax rates below five percent. For example, profits generated in Kenya or Uganda may be booked in Cyprus, or revenues from South American consumers may lead to taxes paid in Ireland. This isn’t just a loss of public revenue - it severs the connection between corporate success and the societies that support it.
To address this, we need new metrics that embed fiscal responsibility at the core of impact evaluation. Not as an appendix under governance, but as fundamental criteria. The Fiscal Alignment Ratio would measure how closely booked profits match the locations where value is actually created. The Value Alignment Index would assess whether the countries benefiting from corporate tax payments share the values the company claims to promote. Does a company advocating for gender equality pay taxes primarily to countries that systematically oppress women? Does a health company shift profits to jurisdictions dismantling welfare systems? These are not merely legal questions - they are moral imperatives. The states benefiting from corporate success are silent partners in impact and must be subject to the same ethical scrutiny.
For these metrics to be effective, transparency is essential. As noted earlier, Country-by-Country (CbC) reports already contain standardized, verified data on profit and tax allocations. Publishing these reports would not require new systems, just the will to open what is currently hidden. This transparency would allow investors and the public to hold companies accountable for their fiscal choices and align corporate behavior with genuine impact.
Governments must also confront their double game. On one hand, they promote ESG standards, fund social investment vehicles, and offer tax incentives for green initiatives. On the other, they enable tax structures that drain the very social systems they claim to protect. This contradiction weakens trust and undermines the integrity of ESG itself.
Upgrading these metrics is not a technical refinement; it is a necessary condition for restoring integrity to ESG and impact investing. Without systematic scrutiny of tax practices, ESG will remain an impressive but incomplete framework, a narrative of responsibility that conceals as much as it reveals.
Part D: Where Does the Money Go? Hypothetical Cases of Disconnected Impact
To illustrate the conceptual and practical gaps described above, it is useful to examine several hypothetical yet, entirely realistic, scenarios demonstrating how an apparent impact investment can miss its target when the flow of profit is not scrutinized. These examples are not exaggerated fabrications; rather, they reflect structural patterns already entrenched in the global ecosystem of innovation, taxation, and corporate responsibility.
Consider the case of FemBridge Health, a startup that developed an innovative pregnancy-monitoring technology for smartphones. The platform is primarily used in rural areas of West Africa and has succeeded in lowering maternal mortality rates through an accessible interface, telemedicine services, and an algorithm that flags medical complications at an early stage. The company partners with local civil organizations, trains women from the community to serve as nurses, and presents an impressive array of positive impact metrics. From an ESG standpoint, this is a commendable investment, and in terms of impact measurement, it could even be considered a success.
However, a closer look at the company’s revenue structure and tax payments raises complex questions. The company is legally incorporated in a European country known for its tax incentives, holds its intellectual property rights in another jurisdiction, and channels its profits through a complex tax planning structure that significantly reduces its effective tax rate. According to reports, the tax paid amounted to only about 3%, and none of the income directly flowed to the countries where the operations took place.
Of course, it is not reasonable to expect every startup operating in developing markets to register solely in those same countries. At times, there are legitimate reasons for choosing a particular jurisdiction, including institutional challenges, concerns about corruption, legal uncertainty, or a desire to prepare for future geographic expansion. Nevertheless, when a company benefits from public infrastructure, engages with local governments, and generates significant social change, the question arises: Should its revenue and fiscal contributions entirely bypass the host country?
In this case, the developed service made a significant contribution to public health and community strengthening. However, the economic profits, which were funneled to other countries, did not support the development of public infrastructure in the country where the impact was actually created. As such, the result may be a growing dependency on external technology, without any knowledge transfer, capacity-building, or genuine structural change. This is a situation in which a company may generate positive impact at the product or service level while simultaneously designing an economic structure that drains the impact of long-term resources. From an impact investor’s perspective, it becomes essential to assess not only the outcome of an intervention, but also the trajectory of profit. Scenarios of this nature illustrate how a narrow focus on a social solution may obscure underlying structural processes that generate cumulative harm. At times, an investor may back a venture that symbolically aligns with their values, while in practice empowering entities that do not share those values - or may even oppose them. Therefore, a broader lens is required, one that goes beyond evaluating direct social outcomes and also investigates the hidden economic currents generated in their wake.
On the other hand, consider AgriPulse Systems, a French company that develops AI-powered soil moisture sensors. It operates in northern France and Spain and has chosen to pay taxes in these countries in accordance with the location where its profits are generated. The corporate tax rate paid in France reached approximately 29%, and the company voluntarily published Country-by-Country (CbC) reports on its official website. As a result of returning part of its profits to the public treasury, irrigation solutions for small farmers in rural areas were subsidized, and cooperative agriculture systems received support. In this case, the company’s social and environmental impact derives not only from its products but also from its contribution to the fiscal framework that supports sustainable development. It is important to emphasize that this is not necessarily the “flip side of the coin” in relation to the previous case. AgriPulse operates within developed countries and pays taxes within those countries. This does not preclude the possibility that even companies operating in developing nations may choose not to register their activities in those locations, sometimes for legitimate reasons unrelated to tax avoidance, such as institutional barriers, political instability, or regulatory challenges. The key distinction lies between a structure designed to evade taxes through aggressive planning that lacks genuine economic substance, and a structure where registration occurs for practical reasons, even when the taxing country is not the one in which activities take place.
The challenge for impact investors is therefore to differentiate between these cases and determine whether the company’s tax policy reflects alignment with its stated impact values, or whether it creates a disconnect between operations and broader institutional economic contributions.
The hypothetical cases discussed above demonstrate that the conventional distinction between technology that creates social impact and investment in public infrastructure can no longer be upheld. An investor who focuses solely on the immediate action of a company while ignoring how its profits are routed through taxation - and the downstream effects of that routing - is akin to an admiring visitor who praises an exceptional teacher for saving students year after year, yet overlooks the fact that their success perpetuates a broken education system. A company may indeed generate a distinct and positive impact in a specific domain, but when its profits are not taxed at all in the country where its operations occur, or are taxed in a country that does not share, and may even oppose, the impact values in question, a critical question arises. This concern becomes even sharper when the sovereign state most closely tied to the beneficiaries of the product or service cannot fulfill its basic public responsibilities due to budgetary constraints. In such instances, the corporate social responsibility of both the company and its investors must encompass not only direct social outcomes but also the question of who is allowed to benefit from the public yield of that success.
Let us now consider another case, extreme yet more realistic than we might like to admit. RainAccess, a private tech corporation, develops a decentralized rain-harvesting and smart reservoir system to supply water to rural areas in South Sudan. Its technology serves over 90,000 individuals in collaboration with international agencies. The company showcases impressive data: a 27% reduction in waterborne diseases, significant improvement in access to education for girls, and well-documented health and education impact metrics. However, RainAccess is incorporated in the United Arab Emirates, and most of its profits are funneled there. The primary destination of the company’s tax payments, the fiscal beneficiary of its success, is Saudi Arabia, which directs part of its national budget toward regional initiatives that deny recognition of South Sudan as an independent state. In this instance, the company may be creating positive change for one community while simultaneously, and indirectly, funding a geopolitical effort that threatens that very same community. In terms of the Value Alignment Index, this case would receive a particularly low rating. Roughly 18 million dollars in profits generated in the past year were funneled into a governing system that actively works against the national and historical interests of the population benefiting from the product. This is not merely a moral dissonance; it is a logical failure in the architecture of impact, one that cancels out much of the investment’s effectiveness.
We now turn to a contrasting case: A company named TeachWave, which developed a mobile digital learning platform for refugee children in eastern Turkey. The platform delivers educational content in seven languages, including Kurdish, Arabic, and Persian, allowing children to continue their studies regardless of permanent residence. Among 40,000 active users, approximately 60% are children from undocumented families. The system is well-regarded in the market, winning awards and attracting investment. Yet even here, the picture becomes murky upon examining the tax structure. TeachWave is registered in Germany but transfers its profits to Turkey under a bilateral development agreement. The taxes it pays help fund the Turkish defense system, which suppresses civil Kurdish movements in those very same regions. This is not merely a policy misalignment but a direct conflict: the company works to preserve identity and minority rights while funding a government that suppresses those very populations. If we apply a Fiscal Alignment lens to this case, we find that 87% of the company’s profits were derived from activities in minority regions (including grants and partnerships), yet 94% of its taxes were paid to a country that is neither a liberal democracy nor ranks above 40 on Freedom House’s Human Rights Index. In other words, nearly all the profit generated through an egalitarian education system was funneled into a political structure that undermines that same egalitarianism.
Lastly, consider a complex case with unique analytical value: ClearMed Diagnostics operates in the field of molecular diagnostics in India, Kenya, and Indonesia, while its management headquarters are in Switzerland, where it is also incorporated for regulatory purposes. Despite this structure, the company fully discloses all tax payments by country, publishes its CbC reports on its website, and voluntarily adheres to transparency standards. Its Fiscal Alignment rate stands at 71%, meaning that the majority of its profits are taxed in the countries where its business and social value are created, with the remainder taxed in Switzerland, where management operations take place. This is a particularly high rate relative to market norms. Additionally, indicators of moral justice show that the taxes paid in Switzerland contribute to a country ranked high in human rights, public transparency, and investment in equitable healthcare. This case demonstrates that it is possible to combine a flexible global structure with ethical principles of fiscal responsibility. Such an investment deserves recognition not only for its direct impact but also for its view of the state as an institutional partner in creating that impact.
- FemBridge Health: Fiscal Alignment: Low – The company avoids paying taxes where it operates. Value Synchronization: Medium – Promotes strong social impact but profits benefit unrelated jurisdictions.
- AgriPulse Systems: Fiscal Alignment: High – Pays taxes where business and impact occur.Value Synchronization: High – Supports governments that reinforce sustainable agriculture and equity.
- RainAccess: Fiscal Alignment: Low – Profits are routed away from the impact zone. Value Synchronization: Low – Tax contributions benefit a regime that undermines the served population.
- TeachWave: Fiscal Alignment: Medium – Operates in minority regions but pays taxes to central authority.Value Synchronization: Low – The taxes fund policies that suppress the very groups it serves.
- ClearMed Diagnostics: Fiscal Alignment: High – Majority of taxes paid where value is created.Value Synchronization: High – Contributes to a country with strong democratic and ethical governance.
These examples make it clear that positive impact is not solely a function of the product. Rather, it stems from the sum of decisions surrounding its implementation. In a world where corporations perform public functions, it is necessary to evaluate not only the outcome of an investment, but also the fiscal and value framework within which it is realized.
Part E: Conclusion - The Impact That Is Not Measured, and Its Price
The global discourse surrounding ESG and impact investing has successfully embedded non-financial considerations into the heart of economic thought. It has introduced new expectations for corporate executives, opened avenues for institutional investors, and constructed frameworks aiming to translate values into financial rationale. Yet as this discourse matured, a systemic blind spot has become clear: the omission of the fiscal dimension.
Taxation, the mechanism through which states translate business activity into public resources, holds the key to the next stage of ethical investment thinking. A company that pays taxes is not merely operating within a system; it funds that system. The state is not merely a regulator or a supervisor - it is a beneficiary of corporate profits.
When a company declares certain values but routes its profits to a country that violates those values, a profound moral question arises. This is not merely a technical or legal issue; it is a question of alignment between intention and outcome, between corporate action and institutional impact.
This article proposed two new paradigms to address that gap: The Fiscal Alignment Ratio measuring the match between where profits are booked and where value is created. The Value Alignment Index evaluating whether the countries benefiting from a company’s taxes align with the values it claims to promote. These indices are not meant to replace ESG indicators but to enrich them, ensuring that fiscal pathways are not ignored.
The examples and table above illustrate how, without this lens, even well-meaning investments can fund regimes or policies that undermine their stated impact. In such cases, impact investors risk offering immediate solutions without building the institutional resilience required for lasting change. We can no longer evaluate impact without asking: where does the profit flow, and what is done with it? An investment that ignores taxation is incomplete. For ESG and impact frameworks to stay relevant, and for markets to serve as tools of true societal transformation, we must demand transparency, including full public disclosure of CBC reports, and be willing to confront these moral complexities.
[1] Danielle A. Chaim & Gideon Parchomovsky, The Missing “T” in ESG, 77 Vand. L. Rev. 3 (2024), available at https://ssrn.com/abstract=4802304.