Corporate Sustainability Performance and Assurance on Sustainability Reports: Diffusion of Accounting Practices in the Realm of Sustainable Development

Abstract

In response to investors and other stakeholders questioning the credibility of the performance information displayed in sustainability reports, companies increasingly have their sustainability reports voluntarily assured by an independent third party. However, voluntary third-party assurance on sustainability reports (SA) may vary considerably in terms of the choice of the assurance provider as well as the scope and level of assurance. In this study, the relationship between corporate sustainability performance (CSP) and choices related to SA is explored.Using a panel data set of 4686 listed companies (from 21 European and North American countries) during the period 2009-2014, the results indicate that companies with a superior CSP are more likely to employ third parties to provide assurance on their sustainability reports than companies with an inferior sustainability performance. For companies that employ third parties to provide assurance, we also find that, among the companies headquartered in the more shareholder-oriented countries, CSP plays a significant role in explaining variation in the choice of the assurance provider, while predominantly in the more stakeholder-oriented countries, companies with a good CSP are more likely to choose a broader assurance scope than companies with a poor CSP. The results support the notion that companies with a superior CSP make different choices related to SA than companies with an inferior CSP. The results also indicate that country-specific characteristics are important for understanding the variation in choices related to SA. We discuss the findings and their implications.

Exploring factors relating to extinction disclosures: What motivates companies to report on biodiversity and species protection?

“…This result does not offer support for 2, and it is against the greenwashing perspective explanation that is companies with poor performance employ third party and adopt selective assurance to signal that B/E is credible and reliable (Hahn & Lülfs, 2014;Odriozola & Baraibar-Diez, 2017). This result is in contrast with the prior study of (Braam & Peeters, 2018) who found that poor performers companies prefer the "low-quality assurance options" with less scrutiny, so they have more room to decouple their revealed poor performance from their actual, true performance. However, this result is in line with other numerous CSR prior studies which find a positive relation between assurance provided by the Big 4 and disclosure (Cheng, Green, & Ko, 2015;Simnett et al, 2009) to ensure that stakeholders are aware of the appropriateness of the companies' actions taken on sustainability issues (Clarkson et al, 2008).…”

“…In this context, Farooq and De Villiers () noted that the main objective of assurance is to improve sustainability reports' credibility. In addition to the above, prior literature argues that assurance provided by accounting firms is more expensive and of high quality comparing with other assurance providers (Braam & Peeters, ; Simnett et al, ). Greenwashing predicts that the companies that are more likely to be subject to public pressure and legitimacy threats due to poor sustainability performance may employ third parties to provide assurance to signal good performance (Boiral, ; Cho et al, ; Maroun, ).…”

“…However, because they must comply with the reporting standards, these companies prefer the “low‐quality assurance options” with less scrutiny, and thus, they have more room to decouple their revealed poor performance from their actual performance. These companies are less likely to employ assurance providers from the auditing profession and are more likely to choose limited assurance on specific sections of the firms' sustainability report (Braam & Peeters, ).Hypothesis There is a relationship between providing disclosure on B/E and buying assurance.Hypothesis There is no relationship between providing disclosure on B/E and getting assurance from the Big 4 accounting firms.…”

“…However, because they must comply with the reporting standards, these companies prefer the "low-quality assurance options" with less scrutiny, and thus, they have more room to decouple their revealed poor performance from their actual performance. These companies are less likely to employ assurance providers from the auditing profession and are more likely to choose limited assurance on specific sections of the firms' sustainability report (Braam & Peeters, 2018).…”

How market value relates to corporate philanthropy and its assurance. The moderating effect of the business sector

“…Stakeholders, among whom investors are of major importance, often require companies to retain independent, external assurance of their activities (Adams & Evans, 2004;Braam & Peeters, 2018;Sethi, Martell, & Demir, 2017a), thus ensuring quality and compliance with accepted standards (Cnaan, Jones, Dickin, & Salomon, 2011;Luffarelli & Awaysheh, 2018;Martínez-Ferrero & García-Sánchez, 2017). Compliance with standards lends credibility to firms' commitment to social issues (Moratis, 2018;Shafer & Lucianetti, 2018).…”