ESG AND SUSTAINABILITY ASSURANCE PRACTICES: A USA CASE STUDY

This study seeks to investigate the discrepancy between the increasing production of sustainability reports and the relatively stagnated rates at which these reports are assured in the USA by examining the determinants behind companies’ decision to assure. The paper highlights the notion of ESG and sustainability assurance practices in enhancing credibility of an organization’s Environmental, Social, and Governance (ESG), with some emphasis on the ESG score as one of the predictor variables. Drawing on a comprehensive review of literature, the research synthesizes insights from various prominent scholars including some with country specific results that help set the stage to draw out and benchmark similar causal relationships, hypotheses and understanding extended for this study. Key findings reveal that the sustainability performance proxied by the ESG score is the main significant determinant for the decision to assure, with stronger sustainability performing firms being more likely to seek assurance. Further to this, the choice of assurance provider (ASAP or NASAP) seems to have an equal effect with no strong distinction on the assurance decision with both significantly favoring the baseline choice of not assuring. The main factors significantly influencing ESG scores and thus indirectly affecting the assurance decision relate to certain sustainability initiatives, corporate governance factors, industry regulatory pressure, and company size given by market capitalization. Challenges in data collection for most private firms resulted in adjustments to the second model which considered only public firms (S&P 500, most of which are included in the first model’s sample of F100) and had an increased number of deterministic variables; as well as maintenance of the Random Effects model for the sustainability performance model albeit the choice of the Hausman test for the traditional Fixed Effects (FE) model so as to maintain important variables. Future research could extend model 1 sample by considering Fortune 500 companies, as well as extend the ESG score model to a non-traditional flexible FE model that ensures important time-invariant variables are maintained. This could provide a sufficient level of model efficiency and appropriateness as well as improve the robustness of future analyses. This research contributes to the understanding of ESG and sustainability assurance by shedding light on their role in driving Corporate Sustainability. The findings underscore the importance of independent, transparent, and accountable reporting mechanisms for credibility and highlight the need for further research to explore emerging trends and best practices in this field. While this paper only draws on USA data for analysis, practical implications of this study should enable better understanding of determinants of the demand for Corporate Social Disclosure (CSD) assurance and ESG performance that could inform regulators, companies and investors, with similar empirical analysis undertaken on a more global basis for various comparisons.