The effect of external assurance on corporate carbon disclosures: Empirical evidence from Europe

Company carbon disclosures are a fundamental piece of information for assessing firms’ environmental impact, and many policy actions are associated with them. Responding to a rising demand for transparency and regulatory requirements, firms disclose information on their greenhouse-gas (GHG) emissions and voluntarily engage with external assurance of the reported data. However, the possible existence of systematic differences in reported emissions with respect to their assurance status is under-explored. This study investigates the causal effect of external assurance on carbon disclosures in a sample of European companies. Findings suggest that, on average, non-assuring firms under-report their direct GHG emissions by a share similar to the largest annual emissions reduction in the EU, compared to the assured reports of their peers. Instead, assurance’s effect is much weaker in indirect emissions. These results demonstrate that third-party assurance could provide more prudent estimates of corporate GHG emissions which are important for all stakeholders, including companies, investors and policymakers, to mitigate climate change.