The impact of the board of directors, compensation, and carbon intensity on carbon assurance and the choice of assurance provider : evidence from the United Kingdom

Abstract

Climate change has attracted increasing awareness among the public because of its adverse effects on the environment. The negative implications of climate change also have consequences for firms, including increased expectations for better carbon mitigation and performance. In response to social pressures, a growing number of firms are producing carbon disclosures, but unlike financial disclosures, these statements do not require mandatory assurance. Even so, there is a growing demand for credible carbon emissions that can be best met by carbon assurance. Carbon assurance is a practice in which an independent third party verifies that carbon disclosures reflect the true nature of a company's carbon emissions. This process is expensive, and because it is loosely regulated, firms can engage various providers, such as accountants or environmental consultants. Although it is a voluntary process, an increasing number of firms are adopting carbon assurance. However, a limited number of studies have examined this topic. These studies have identified a demand for credible emissions and social and stakeholder pressures as key influences on firms' adoption of carbon assurance and choice of provider but have not regularly examined other factors, such as board characteristics and compensation. Therefore, driven by the scant literature, this study empirically investigates the determinants of firms' decisions to assure their emissions and their choice of provider using a sample of 1,092 firm-year observations from firms in the United Kingdom that responded to the CDP (formerly the Carbon Disclosure Project) over the 2010-2018 period. This study considers factors that have thus far only been examined in a limited context, if at all, in relation to carbon assurance. These factors include gender diversity on the board, the presence of a corporate social responsibility (CSR) committee, duality, board function, director and executive compensation, and carbon intensity as possible determinants of assurance adoption. This study facilitates understanding of board characteristics, compensation, and carbon intensity as determinants of both the decision to adopt assurance and choice of assurance provider. It also provides valuable information for policymakers, regulators, and accounting educators by providing further information on the emerging practice of carbon assurance.

Date of Award	2020
Original language	English