Voluntary sustainability reporting assurance in the European Union before the advent of the corporate sustainability reporting directive: The country and firm‐level impact of Sustainable Development Goals

Abstract

Drawing on institutional and signaling theories, this paper investigates country‐and firm‐level impact of Sustainable Development Goals (SDGs) on the European Union (EU) companies' decision to have sustainability reporting assured prior to the implementation of the Corporate Sustainability Reporting Directive (CSRD). The dataset consists of 960 companies based in the EU and covers 2020–2022. The total number of observations equals 2880. The research focuses on SDGs‐related factors influencing companies' assurance decisions such as the countries' advancement in SDGs implementation represented by SDG SCORE and companies' efforts toward the SDGs achievement captured with SDG INDEX. The data are analyzed using descriptive statistics and the fixed effects regression model for panel data. The results of the study indicate that SDGs impact companies' assurance decisions on both levels. Larger companies tend to opt for assuring their sustainability reporting more frequently, while those operating in environmentally sensitive industries display greater hesitancy in this regard. The research findings suggest adding SDGs to the wide range of factors identified in previous literature as determinants of the differences in sustainability reporting assurance. Company managers should increase their efforts to achieve the SDGs, as this might promote the use of assurance. The involvement of government agencies, national accounting and auditing associations and standard setters in the implementation of the SDGs can be useful in facilitating the transition from voluntary to mandatory implementation of assurance under the new CSRD.

Company-Level Factors of Non-Financial Reporting Quality under a Mandatory Regime: A Systematic Review of Empirical Evidence in the European Union

“…Auditing firms have adapted their services to provide limited assurance in a variety of fields that are outside the scope of the statutory financial audit [28]. For an EU sample, Krasodomska et al [29] found that larger companies tend to assure their sustainability reports more often, while those operating in environmentally sensitive industries are more reluctant in this regard. The CSRD imposes mandatory limited assurance on sustainability reports, starting with 2024.…”

“…This will support researchers in synthesizing existing articles and enrich the literature through research results on corporate sustainability and financial performance and the quality of sustainability reporting. We also highlight the need for empirical research activities on corporate sustainability assurance [29], considering the novelty and complexity associated with CSRD requirements, applicable through the European Sustainability Reporting Standards. Therefore, a relevant avenue of future research is analyzing whether corporate sustainability assurance is a positive factor in increasing the quality of corporate disclosures while building investor trust.…”