Audit Committees and the Quality of Standalone Sustainability Reporting, Considering the Moderating Role of External Assurance: Evidence From the Global Chemical Industry

Abstract

Sustainability reporting and its assurance are increasingly becoming globally mandatory, alongside the issuance of international standards for sustainability assurance aimed at boosting the confidence and trust of investors, regulators and other stakeholders in sustainability-related disclosures. The objective of this paper is to investigate how the interplay between external assurance and an effective audit committee (AC) might influence the quality of GRI standalone sustainability reporting. Using the GRI Standards (2016), a disclosure index with 32 items referring to six quality indicators was developed to assess the quality of the sustainability reports of 104 chemical firms from 36 countries for the years 2020, 2021 and 2022. Our panel regression showed that increased numbers of AC members, along with their higher levels of independence, directly improve the quality of sustainability reporting. However, when external assurance is involved as a moderating variable, sustainability reporting quality is further enhanced by smaller AC size, greater sustainability expertise and a higher proportion of female AC members. This study makes an original contribution by addressing a gap in the literature regarding the impact of AC sustainability expertise, as well as the moderating role of external assurance on the relationship between AC characteristics and the quality of sustainability reports. The research provides a valuable assessment tool for chemical firms to benchmark the quality of their sustainability reporting and offers insights for shaping sustainable business strategies. The findings will help raise awareness among regulators, policymakers and industry stakeholders about the need to incorporate sustainability experts, achieve better gender balance in AC and engage external auditors in the sustainability reporting process.