Corporate incentives for obtaining higher level of carbon assurance: seeking legitimacy or improving performance?

Purpose - With the growing attention around carbon emissions disclosure, the demand for external carbon assurance on emissions reports has been increasing by stakeholders as it provides additional credibility and confidence. This study investigates the association between the higher level of external carbon assurance and improvement in a firm's carbon emissions. It provides an understanding of corporate incentives for obtaining a higher level of carbon assurance, particularly in relation to carbon performance enhancements. Design/methodology/approach - Data are collected from 170 US companies for the period 2012-2017, and are analysed using a change analysis. Generalized method of moment (GMM) is used to address endogeneity. Findings - Following the rationales taken by legitimacy and ‘outside-in’ management views, our findings reveal that a higher level of carbon assurance (i.e. reasonable assurance) marginally improves firms’ carbon performance (i.e. reported carbon emissions). This is consistent with ‘outside-in’ management view suggesting that a higher level of assurance could be utilised as a tool for accessing more information about stakeholders’ needs and concerns, which can be useful in enhancing carbon performance. Research limitations/implications - Our findings are generalizable to US firms and may not extend to other contexts. Practical implication – The implication of this study for companies is that a high level of sustainability assurance is a useful tool to access detailed information about stakeholder concerns, of which internalisation can help to marginally improve carbon performance. For policymakers, the insights into and enhanced understanding of the incentives for obtaining carbon assurance can help policymakers to develop effective policies and initiatives for carbon assurance. Considering the possible improvements in carbon performance when obtaining a high level of sustainability verification, governments need to consider mandating carbon assurance. Originality/value – This study extends the existing studies of assurance in sustainability context as well as in carbon context by explaining why companies voluntarily get expensive external verification (i.e. higher level of assurance) of their carbon emissions disclosure. This study responds to calls in the literature for empirical research investigating the association between environmental performance and external assurance with a focus on level of assurance