Assurance on sustainability reports – How is it perceived?
As companies start to invest in assurance for their sustainability reports, they have to wonder “is it worth it?” Academic studies can shed some light on this.
In a 2105 study, researchers at the University of New South Wales in Australia looked at whether assurance of environmental, social, and governance (ESG) indicators affected investors’ willingness to invest in a company.
Researchers presented a sustainability report with ESG indicators to graduate students in a master’s of financial analysis program. These were students who were “sophisticated” users of financial information. They were told that they had inherited some money (lucky for them) and were to indicate their willingness to invest the money in a company. The researchers varied which students were given sustainability reports with assurance vs. no assurance and whether the company’s strategy and ESG indicators were aligned. For example, assume a retail grocery’s strategy is aimed at supporting products that are based on environmental stewardship. A strategically aligned ESG indicator would be the percentage of animal products sold that are sourced from sustainable agricultural practices.
What did they do with their inheritance? Study participants, aka, investors, were more willing to invest if the company had its ESG indicators assured. Assurance made a statistically significant difference! It also mattered to these investors if the ESG indicators had a high relevance to the companies’ strategy. This is an important result, especially as companies decide on what sustainability metrics to report. Just reporting for the sake of reporting does not mean as much as reporting what matters. This sounds very much like the essence of the GRI G4 Sustainability Reporting Guidelines.
This is just one study, but an interesting one that supports the role of assurance in giving credibility to sustainability reports. There are other assurance studies that I will talk about in future blogs.