The Association between Sustainability Governance Characteristics and the Assurance of Corporate Sustainability Reports

TLDR

The study investigates how sustainability‑oriented corporate governance mechanisms affect the voluntary assurance of corporate sustainability reports. The authors examine the presence of environmental committees and Chief Sustainability Officers, and distinguish assurance services provided by professional accountants, consultants, and internal auditors. Findings show that CSOs and expert environmental committees boost assurance uptake, with expert CSOs preferring consultants and expert committees favoring professional accounting firms, while firms with CSOs and poor environmental performance tend to omit assurance, larger U.S.

Abstract

SUMMARY This study provides evidence on whether sustainability-oriented corporate governance mechanisms impact the voluntary assurance of corporate sustainability reports. Specifically, we consider the presence and characteristics of environmental committees on the Board of Directors and a Chief Sustainability Officer (CSO) among the management team. When examining assurance services, we make a distinction between those services performed by professional accountants, consultants, and internal auditors. We find that the presence of a CSO is positively associated with corporate sustainability report assurance services, and this association increases when the CSO has sustainability expertise. Supporting the position that some firms establish sustainability-related governance merely to conform to socially desired behavior, we find that only those environmental committees containing directors with related expertise influence the likelihood of adopting sustainability assurance. Presently, environmental committees with greater expertise appear to prefer the higher-quality assurance services of professional accounting firms. Expert CSOs, on the other hand, prefer assurance services from their peers with sustainability expertise, as evidenced by their choice to employ consultants. When analyzing firms' environmental contextual characteristics, we find that firms employing a CSO and exhibiting poor environmental performance, relative to other firms in their industry, prefer to report sustainability results without assurance. While we do find that larger firms in the U.S. are significantly less likely to employ assurance, this result decreases over time. Further, we provide initial evidence that the value-relevance of sustainability assurance is increasing with time.