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    The Impact of Strategic Relevance and Assurance of...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors' Decisions.
    Practical Implications:

    This study contributes to understanding the interaction between strategy information and ESG information on investment decisions, and provides support for the argument that investors can benefit from the enhanced connections between strategy and ESG information that form the underlying basis of Integrated Reporting. Importantly, the results document that investors' perception of strategic relevance is a driver of their investment decisions. This study suggests that nonprofessional investors’ responses to sustainability disclosure are affected by the strategic relevance of the reported information. The assurance affects investment decisions by increasing the perceived importance of the sustainability information suggests that assurance has a signaling effect, and highlights the importance of making independent assurance public to investors.


    Cheng, M. M., Green, W. J., & Chi Wa Ko, J. 2015. The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors' Decisions. Auditing: A Journal of Practice & Theory 34 (1): 131-162.

    environmental social governance indicators, strategic performance information, strategy, sustainability assurance
    Purpose of the Study:

    In this paper, the authors extend the prior sustainability and assurance literature by examining whether and how the strategic relevance of environmental, social, and governance (ESG) indicators interact with sustainability assurance to influence nonprofessional investors’ investment decisions. Strategic relevance is defined as the extent to which the ESG indicators are critical to evaluating the company’s strategy. The research provides insights regarding how this information affects nonprofessional investors’ investment decisions.

    Sustainability assurance is a growing area of interest to assurance professionals, researchers, and investors. Despite this increased interest, there is limited empirical research on the impact of sustainability report assurance on investors’ decision-making. The first experiment manipulates strategic relevance of reported environmental, social, and governance (ESG) indicators between "high" and "low" by varying the company strategy (sustainability-based differentiation strategy versus cost leadership strategy unrelated to sustainability). The second experiment manipulates the strategic alignment of the ESG indicators (holding strategy constant). The authors also manipulate the presence or absence of assurance in both experiments.

    Design/Method/ Approach:

    The first experiment uses a 2x2 between-subjects experimental design. The participants are 128 graduate students enrolled in a Master’s of Financial Analysis at a leading international business school, and act as surrogates for nonprofessional investors. The average age of the participants was 24.4 years old, 73 percent of whom were female. The experimental instrument was administered to volunteer participants during the semester in designated experimental sessions on campus in fall 2012.

    • Results from experiment one indicate that both factors increase the importance nonprofessional investors place on the ESG indicators when making investment decisions, and perceived importance in turn increases nonprofessional investors’ willingness to invest.
    • Experiment one also shows an interaction effect where the positive impact of assurance on nonprofessional investors’ willingness to invest is moderated by the strategic relevance of ESG indicators.
    • The results of the first experiment suggest that even in the retail industry context, assurance is more likely to affect nonprofessional investors’ decisions if the ESG indicators are highly relevant to the company’s strategy.
    • Experiment two provides further support that the perception of the strategic relevance of ESG indicators increases investors’ willingness to invest.
    • The finding that assurance increases the perceived importance of ESG indicators suggests that assurance has a beneficial signaling effect.
    • Companies are likely to benefit from both the disclosure of ESG indicators that are seen as strategically relevant, and the independent assurance of sustainability reports containing this information.
    • The benefits that may accrue to a company from assuring their ESG indicators is greater
      if they can clearly communicate to potential investors the link between the company’s strategy and its ESG performance.
    International Matters
    Sustainability ServicesTraining & General Experience