From the course: Corporate Finance: Environmental, Social, and Governance (ESG)

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Are ESG disclosures audited by an outside third party?

Are ESG disclosures audited by an outside third party?

From the course: Corporate Finance: Environmental, Social, and Governance (ESG)

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Are ESG disclosures audited by an outside third party?

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- Data are useful in decision-making only if those data are reliable. It has long been recognized that the reliability of a company's financial statements is substantially increased if the data underlying those statements have been carefully audited by an independent outsider. So, are ESG disclosures audited by an outside third party? Sometimes yes, but usually no. In 2021, the Center for Audit Quality found that 95% of the 500 largest companies in the United States provided detailed ESG information but that only about half of those companies obtained independent third-party assurance or verification of the information provided. And for those companies that did obtain outside verification, almost all of them described the assurance level as limited. In other words, at least as of 2021, the ESG information reported by companies has a much lower reliability level compared to, say, the financial data contained in the…

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