Voluntary carbon assurance and the cost of equity capital: International evidence

We examine the impact of voluntary carbon assurance on a firm's cost of equity capital (COE). Based on 6500 firm-year observations across 44 countries covering a period of 8 years (2010-2017), we find that the adoption of carbon assurance is negatively associated with the COE. Cross-sectional analyses show that the negative relationship is stronger for firms with poor emissions reduction performance and for firms that do not participate in an emissions trading scheme. We also find that a country's legal institutions and economic development have significant moderating effects on this relationship. Furthermore, the scope and the percentage of carbon emissions assured, the level of carbon assurance, and the auditing standards adopted have varied effects on the COE. These findings should be useful to regulators, managers, and investors looking to improve the credibility of voluntarily reported information.JEL Classification: M41, M42, Q56, G32