Obtaining assurance on ESG information enables a company to convey its commitment to providing quality, reliable and comparable ESG information to a growing and increasingly diversified stakeholder and investor base. Assuring ESG information helps identify opportunities for improvement of systems and processes surrounding the collection and reporting of ESG data and, ultimately, more reliable and decision-useful information.
Producing accurate, reliable ESG information in turn results in the following:
Increased stakeholder trust and confidence in the information.
Improved communication and collaboration among parties responsible for financial reporting and ESG reporting, which may be different.
Greater coverage by analysts because an improved information environment reduces forecast errors and allows for the convergence of analysts’ expectations about a company’s future profitability.6
Increased comfort among equity investors funding capital to entities that obtain assurance over ESG information to signal that their social and environmental risks are being effectively managed, translating to lower cost of equity.7 High ESG-rated companies have been less exposed to systematic risks — risks that affect the broad equity market or market-like sectors or industries — than low ESG-rated companies.8
Lower average cost of debt of high ESG-rated companies compared to that of low ESG-rated companies. Effective governance, one of the core elements of ESG, is known to reduce a company’s default risk, which directly affects its cost of debt.9
Potentially reduced interest expense in connection with sustainability-linked loans, the interest rates of which adjust based on whether a company meets a predetermined ESG goal, such as reducing carbon emissions.
