Integrated Reporting and Assurance of Sustainability Information: An Experimental Study on Professional Investors’ Information Processing

Abstract

Sustainability-related non-financial information is increasingly deemed value relevant. Against this background, two recent trends in non-financial reporting are frequently discussed: integrated reporting and assurance of sustainability information. Using an established framework of information acquisition, evaluation, and weighting, this experimental study investigated how the choice of reporting format interacts with the voluntary assurance of sustainability information. The results from a sample of professional investors underline the important role of assurance in the context of voluntary disclosure and illustrate the relevant interaction with the reporting format. Assurance of sustainability information positively affected professional investors' evaluation of a firm's sustainability performance, resulted in a higher weighting of this information, and led to higher investment-related judgments. However, this assurance effect was weaker in the case of integrated reporting compared to separate reporting. We attribute this effect to a cognitive bias in decision making when assured financial performance and non-assured sustainability performance are presented in the same report.

Determinants of materiality disclosure quality in integrated reporting: Empirical evidence from an international setting

“…Whereas the assurance of financial information in IR is mandatory, nonfinancial information is regularly only “self‐assured” (Eccles & Krzus, ), which results in high uncertainty for stakeholders given that especially the concept of materiality permits a large degree of freedom in the preparation of the report (Mio, ; Simnett & Huggins, ). Through an independent external assurance of the nonfinancial disclosure, management can signal quality and transparency to the stakeholders of the firm (Mio, ; Reimsbach, Hahn, & Gürtürk, ). Accordingly, research in the nonfinancial reporting literature considers assurance to be a quality criterion of CSR disclosures (Clarkson, Li, Richardson, & Vasvari, ; O'Dwyer, Owen, & Unerman, ).…”

Integrated reporting of environmental, social, and governance and financial data: Does the market value integrated reports?

“…An IR should provide investors not only with information on how much value was added, but additionally how the value was generated (IIRC, 2015). We follow Reimsbach, Hahn, and Gürtürk (), who apply a cognitive‐psychology approach that is based on Maines and McDaniel's () model to asses investors' information processing. The model includes the concept of the cognitive costs that occur while processing information.…”

“…The model includes the concept of the cognitive costs that occur while processing information. Reimsbach et al () follow Hodge, Hopkins, and Wood () who propose a link between the cognitive cost theory and the proximity compatibility principle. This principle indicates that information that is relevant for a certain task should be presented in an appropriate display proximity (Wickens & Carswell, ).…”

Corporate Sustainability Performance and Assurance on Sustainability Reports: Diffusion of Accounting Practices in the Realm of Sustainable Development

“…In response to concerns relating to the credibility of the sustainability information disclosed, there has been a growing tendency for companies to have their sustainability reports voluntarily assured by an independent third party (Junior et al, 2014;KPMG, 2015). Voluntary independent third-party assurance on corporate sustainability reports (SA) can help improve stakeholders' confidence in the credibility of the sustainability information provided and thus enhance the corporate reputation (Simnett et al, 2009;Pflugrath et al, 2011;Reimsbach et al, 2017). In addition, the process of independent assurance may induce companies to improve their risk management and accounting information systems to produce and disclose more reliable and accurate sustainability information, and strengthen companies' commitment to sustainability (Fonseca, 2010;GRI, 2013;Junior et al, 2014;Cohen & Simnett, 2015;Gürtürk & Hahn, 2016;Braam et al, 2016;García-Sánchez & Martínez-Ferrero, 2016).…”