The impact of legitimacy threaton the choice of external carbon assurance

Abstract

Purpose The purpose of this study is to examine the impact of legitimacy threats on corporate incentive to obtain external carbon assurance. Design/methodology/approach The sample consists of the largest US companies that disclosed carbon emissions to CDP (formerly the Carbon Disclosure Project) over the period 2010-2013. Based on legitimacy theory, firms are more likely to obtain carbon assurance when they are under greater legitimacy threat. Carbon assurance is measured using CDP data. Three proxies are identified to measure legitimacy threat related to climate change: carbon emissions intensity, firm size and leverage. Findings This paper finds that firms with higher levels of emissions are more likely to obtain independent assurance, and large firms show the same tendency, as they are probably under pressure from their large group of stakeholders. In sum, the findings suggest that firms with higher carbon emissions face greater threats to their legitimacy, and the adoption of carbon assurance can mitigate risks to legitimacy with enhanced credibility of carbon disclosure in stakeholders’ decision-making. Research limitations/implications The study has some limitations. The authors have relied on CDP reports for analysis and focus on the largest companies in the US. Caution should be exercised when generalising the results to smaller firms, other countries or voluntary carbon assurance information disclosed in other communications channels. Practical implications This study provides extra insights into and an improved understanding of determinants and motivation of carbon assurance, which should be useful for policymakers to develop policies and initiatives for carbon assurance. The collective results should be useful for practicing accountants and accounting firms. Originality/value The paper investigates how legitimacy threats affect firms’ choice of external carbon assurance in the context of US, which has not been documented previously. It contributes to the understanding of legitimacy theory in the context of voluntary carbon assurance.

Institutional Influence, Transition Management and the Demand for Carbon Auditing: The Chinese Experience

“…This finding is consistent with the results of prior literature (Datt et al. ) that the institutional factor (i.e., US government carbon regulations) is the main reason why US firms tend to obtain more carbon assurance than sustainability assurance. Meanwhile, public interest also appears to be associated with carbon auditing.…”

“…The creation of carbon insti-tutions and the resultant enhanced green funding have fundamentally modified the business environment and accelerated the speed of transition toward a low-carbon environment, which in turn has trigged growing demand for carbon auditing in the Chinese public sector. This finding is consistent with the results of prior literature (Datt et al 2018) that the institutional factor (i.e., US government carbon regulations) is the main reason why US firms tend to obtain more carbon assurance than sustainability assurance. Meanwhile, public interest also appears to be associated with carbon auditing.…”

“…Prior research suggests that institutional factors are related to the demand for new types of assurance practice (Datt et al 2018;Casey and Grenier 2015;Simnett et al 2009a). Institutions refer to legislative acts and regulations, societal and technical norms, standards for good practice, etc.…”

Corporate choice of providers of voluntary carbon assurance

“…In summary, we are currently in the transition toward a carbon-neutral economy, and carbon assurance is no doubt one of the most powerful tools that is expected to play a critical role in achieving carbon-reduction targets (Datt et al, 2018;Datt et al, 2019;Tang, 2019 Note. For example, although CDP provides the most comprehensive and comparable database for an international study, its database is primarily based on voluntary participation of the companies.…”

The direct and moderating effects of power distance on carbon transparency: An international investigation of cultural value and corporate social responsibility

“…Many studies on CSR examine the determinants that affect companies' commitment to environmental preservation (Carballo‐Penela & Castromán‐Diz, ; Caritte, Acha, & Shah, ; Glass, Cook, & Ingersoll, ; Habib & Bhuiyan, ; S. Wang, Li, & Zhao, ; Yu, Lo, & Li, ) and to social and environmental disclosure (D'Amico, Coluccia, Fontana, & Solimene, ; Galbreath, ; Gallego‐Alvarez, Ortas, Vicente‐Villardón, & Álvarez Etxeberria, ; Helfaya & Moussa, ; Jizi, ; Lokuwaduge & Heenetigala, ). Because carbon disclosure is voluntary, the reliability of CSR disclosure is a concern (Datt, Luo, & Tang, ; Datt, Luo, Tang, & Mallik, ; Luo & Tang, ). Thus, the practice of assurance and study of its determinants and effects on CSR reports is emerging (De Beelde & Tuybens, ; Kolk & Perego, ).…”