High-quality assurance, ESG legitimacy threats and board effectiveness

Abstract

This study aims to investigate whether companies engage high-quality assurance in response to legitimacy threats caused by media coverage of negative sustainability events. Since responsive strategies designed to maintain or repair legitimacy directly emanate from boards, the paper also analyses whether board effectiveness reinforces defensive strategies to maintain a company's reputational capital and public image under environmental, social and governance (ESG) concerns by supporting high-quality sustainability assurance. Using a sample of STOXX Europe 600 index firms from 2015 to 2020, the empirical results confirm the substantive role of assurance. When a company's legitimacy is at risk due to media coverage of ESG misconduct, the assurance of sustainability information is employed as an instrument to aid in repairing the company's legitimacy. In addition, our results confirm that boards with desirable attributes of independence and activity act jointly with assurance quality to legitimise companies. In addition, this paper also brings evidence about the mediating effect of board effectiveness; the impact of negative media ESG coverage on sustainability assurance quality appears to be justified by the effectiveness of the board. The evidence also points to interesting findings concerning controversial industries and countries with tight cultures, where the assurance quality seems not to respond to the legitimacy threats associated with media coverage of undesirable ESG. However, and after studying how the European Directive 2014/95/EU affected the symbolic use of assurance, results confirm that there are no significant differences in the legitimising use of assurance quality after irresponsible ESG actions before and after the directive, and neither, depending on the level of sustainability performance or public enforcement.