Third-party Assurance of Global Reporting Initiative Sustainability Reports – a Signal of Quality?

Abstract

There are increasing disclosures of environmental information due to the pressure from various stakeholders like investors, the public and customers. Most of these environmental disclosures are provided voluntarily by companies and the amount of information is increasing. Due to this flood of information stakeholders call for independent assurance of these reports (Solomon, 2000; UNEP, 2002; Hasan, 2003; KPMG, 2008; Manetti and Toccafondi, 2012). This paper applies institutional theory and investigates whether the assurance of Global Reporting Initiative (GRI) sustainability reports increases the quality and quantity of the reported information. The purpose of the study is to evaluate whether third-party assured sustainability reports of the energy and utilities sector are better in terms of comprehensiveness and compliance with GRI G3 guidelines. The sample comprises 86 sustainability reports from the GRI database of companies from the energy and utilities sectors. The study uses a two-step method for evaluating the content of the reports and applies an analysis of variance (ANOVA) between the two groups of assured and non-assured sustainability reports to identify significant differences between them. The results indicate that the quality and quantity of the disclosed information is better for assured reports than for non-assured reports. However, the absolute level of disclosed environmental information is not sufficient. The study implies that companies can benefit from assurance services by improving their sustainability reports in comprehensiveness and compliance with GRI G3 reporting guidelines. Stakeholders can assume that assured reports contain more relevant environmental information according to GRI G3 guidelines and that third-party assurance of sustainability reports enhances credibility of environmental reports. We contribute to the literature by examining the relationship between assured and non-assured sustainability reports and their comprehensiveness and compliance with GRI G3 guidelines. We do not use an index or score for assessing environmental disclosures. Rather, we examine the separate environmental performance indicators from GRI because they reflect very different environmental aspects that cannot be aggregated. This innovative approach to environmental disclosure is unique as recent papers on environmental performance also confirm that measures must be separated according to environmental aspects (Bhattacharyya and Cummings, 2013; Trumpp et al., 2013).