The effect of ESG assurance on ESG reporting consistency: evidence from textual similarity

This study explores the impact of environmental, social, and governance (ESG) assurance on the similarity of ESG reporting among peer companies. By analysing data from paired listed firms in China, our findings reveal a significant increase in ESG similarity for those pairs that have received ESG assurance. Further investigation reveals that this positive relationship is even stronger when the ESG assurors are nonauditor firms or have greater experience. Additionally, we assess the style of the assurance providers and find that ESG similarity is notably greater for firm pairs that share the same ESG assuror. Finally, while ESG assurance neither enhances within-firm ESG reporting similarity compared with the previous year (i.e., repetitiveness) nor induces artificial homogeneity across unrelated industries (i.e., homogenization), it does strengthen the connection between ESG reporting similarity and analyst forecast accuracy. Overall, these results suggest that ESG assurance plays a key role in improving and standardizing ESG reporting practices, leading to increased ESG reporting similarity that is valuable to its users.