Market Reactions to Climate Change Assurance Opinions

Abstract

Climate change reporting by public US companies achieved record milestones in 2024. These climate change reports generally disclosed Green-house-gas (GHG) emissions information. Often, but not always, these disclosures were supported by third-party assurance opinions. GHG emissions disclosures are the only ESG information generally associated with assurance opinions. This paper is the first major market-based research on the decision-usefulness, or value-relevance, of assurance opinions associated with any disclosure provided in ESG reports. Capital market experts expect equity price responses to audited financial “performance” information, and associated components including annual audit opinions. Such market responses demonstrate the information's value-relevance. The same could not be claimed for ESG “impact” information overall, ESG report components such as GHG emissions disclosures, or, in particular, the associated assurance opinion provided in annual ESG reports. We examined the equity price reactions to assurance opinions on GHG emission disclosures using the 2024 ESG reports for the S&P 500. We found no statistically significant market response overall or in any industry classification. We found statistically significant market responses to associated assurance opinions if they were issued by PCAOB-registered auditors. We concluded that assurance opinions on GHG emissions disclosures can be value-relevant when they are issued by PCAOB-registered auditors.