Assuring Sustainability: The Association between Independent Sustainability Reporting Assurance and Environmental Performance

Assurance of sustainability reports is increasingly common, and the Securities and Exchange Commission (SEC) will require assurance of certain sustainability disclosures in the next five years. I study the association between sustainability reporting assurance and future environmental outcomes. I find that, for higher-environmental-impact companies, sustainability reporting assurance is associated with lower future carbon emissions and fewer future environmental regulation violations. However, the association between sustainability reporting assurance and future environmental regulation violations is somewhat mixed, as I find higher future violations for lower-environmental-impact companies. I also examine sustainability reporting assurance by accounting firms (e.g., traditional audit firms) versus non-accounting firms. I find that assurance by accounting firms is associated with lower future carbon emissions for higher-environmental-impact companies. However, I find that accounting firm assurance is associated with fewer future environmental regulation violations only for lower-environmental-impact companies. Overall, my results are consistent with either assurance helping higher-environmental-impact companies improve environmental performance or higher-environmental-impact companies using sustainability reporting assurance as part of a strategy to convey to stakeholders their efforts to improve environmental performance, particularly for future carbon emissions. My results are also weakly consistent with the assurance process provided by accounting firms differing from assurance provided by non-accounting firms, although the results are mixed.