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Ms. Cai CHEN
Doctoral Candidate in Accounting
INSEAD

This paper assesses whether and how ESG (Environmental, Social, and Governance) assurance enhances ESG reporting. I measure three relevant reporting properties (i.e., materiality, verifiability, and objectivity) from an international sample of ESG reports, using textual analysis. On average, ESG assurance is positively related to all three reporting properties, lending support to the effectiveness of the assurance practice. These positive relations are more pronounced when assurance providers have greater industry experience, companies employ ESG-linked compensation, and companies’ negative ESG exposure is high. Further analysis of specific assurance choices (level, scope, provider, procedure) reveals their varying association with the reporting properties, highlighting the distinctions between these choices. Finally, for policy implication, I shed light on the enforcement role of ESG assurance in a mandatory reporting framework. Exploiting the implementation of the EU NFRD (Non-Financial Reporting Directive) in 2017, I document that reporting improvements vary with different levels of assurance enforcement. Overall, this paper presents the first international large-scale analysis of detailed assurance choices and establishes a direct link between ESG assurance and ESG reporting properties.