ABSTRACT

This study examines the perspectives of regulatory and quasi-regulatory bodies on Environmental, Social, and Governance (ESG) disclosures and assurance in Ghana. Despite the increasing role of accountants in ESG issues, a lot remains unknown with several controversies regarding accountants providing ESG assurance. Also, regulatory and quasi-regulatory bodies who have been identified as crucial to ESG issues almost seem marginalized and under-researched particularly in developing countries. Using an exploratory qualitative research approach, data is collected from a sample of regulatory and quasi-regulatory bodies in Ghana via semi-structured interviews. The findings reveal that ESG disclosures are not unknown in Ghana and not limited to environmentally sensitive industries. Generally, the results show a low preference for the use of accountants as ESG assurors except for governance disclosures. The local audit firms together with the internal audit function similarly receive a low endorsement as ESG assurance providers on grounds of inadequate expertise, resources and lack of independence. Regardless, there is a high preference for regulators as ESG assurance providers with calls for the use of strategies such as legislation, laws, public education, awards and incentives or ratings to advance ESG disclosures and assurance in Ghana.

The findings change how we should understand ESG disclosures and assurance as well as the attention given to regulators as ESG assurors. Attentions should also be given to accountants, internal auditors and local audit firms in upgrading their skills and resources for environmental and social disclosures. By coming up with an emergent framework called the ESG Perspective framework (ESG-P framework) for studying individuals’ perspectives on ESG disclosures and assurance and by focusing on regulators and quasi-regulators in a developing country (Ghana), the study enriches the current knowledge and literature on ESG disclosures and assurance.

CHAPTER ONE OVERVIEW OF THE STUDY

            Introduction

This chapter introduces the research work by presenting the background of the study, motivation for the research, the purpose of the research, the research question and significance of the research. It finally highlights the organization of the research work.

            Background

Long before Environmental, Social and Governance (ESG) issues began to catch public interest and attention, David Rockefeller in 1972 predicted a time when entities will be expected to publish non-financial information as well as certify such disclosures (Gray, Owen & Maunders, 1987, p.9). Research has shown that we find ourselves in such an era (Farooq & De Villiers, 2017; Junior, Best & Cotter, 2014). Indeed, the way and manner in which businesses are conducted are changing with rising attention on non-financial issues and reporting (Kolk & Van Tulder, 2010). According to Li et al. (2017), major components of non-financial information are environmental, social and governance issues.

A joint report by KPMG and the United Nations Environmental Programme (UNEP) in 2010 emphasize that Environmental, Social and Governance issues, like financial issues can be equally crucial or even more devastating and as such should be given much attention. Studies such as Fonseca (2010), Boiral, Heras-Saizarbitoria and Brotherton (2017), have shown that there is increasing stakeholder attention and demand for ESG information with rising calls for firms to

disclose such information. Thus, businesses are being held accountable not just for their financial performance but even more their non-financial issues herein identified as environmental, social and governance (ESG) issues.

In response to the rising calls for ESG disclosures, literature demonstrates an upsurge in the number of firms publishing one form of ESG issues or the other. For instance, Ackers and Eccles (2015) demonstrate an increase in the number of ESG disclosures as observed in South Africa. Similarly, Junior et al. (2014) in analyzing the 2010 data of Fortune Global 500 companies reveal an increase in the number of ESG disclosures. According to them, the number of these organizations publishing such reports is higher at 93%. These arguments are further confirmed by the KPMG report in 2015 which shows about 92% rise in the number of firms disclosing or publishing a report on ESG. All over the globe there has been record of initiatives taken by firms with regards to ESG issues and the emerging economies have not been left out in this regard. Ackers and Eccles (2015) reveal an increase in both ESG disclosures and assurance in South Africa. Similarly, Weber (2014) provides record of increasing ESG disclosures in China. Other examples include Darus, Sawani, Zain and Janggu (2014) in Malaysia, Simpson, Aboagye and Lovi (2014) in Ghana etc.

It is, however, worth the note that the upsurge in ESG disclosures has not been accompanied with stakeholder reliance and trust in such information. This according to Mock, Rao and Srivastava (2013) can be a transfer of the distrust that accompanied financial disclosures after the period of corporate failures. ESG disclosures have been argued as largely voluntary and unregulated (Nazari, Hrazdil & Mahmoudian, 2017; Leung, Parker & Courtis, 2015; Darus et al., 2014) and hence

stands the chance of being falsified (Lyon & Maxwell, 2011). In fact, scholars like Cho et al. (2014); Gray (2010) O’Dwyer and Owen, (2005) contend and criticize that ESG disclosures are merely used as strategies by organizations to advance their cause than demonstrate true accountability.

The shortcomings associated with ESG disclosures reveal that there is minimal relevance for it in the absence of assurance (Martínez-Ferrero, & García-Sánchez, 2016). González and Martinez, (2004) define assurance to connote an external verification of what is disclosed in the attempt to confirm it is true and accurate. Assurance, however, is not limited to external verifications. Jones and Solomon (2010) identify that assurance could be internal. Similar findings are revealed by Soh and Martinov-Bennie (2015). The significance of assurance to ESG disclosures cannot be overemphasized. Simnett, Vanstraelen and Chua (2009) argue that assurance lends credibility and reliability to ESG reports. This argument is confirmed by Farooq and De Villiers (2017). Taking cognizance of the relevance of assurance, international bodies such as the Global Reporting Initiative (GRI) have demonstrated their support for ESG assurance by taking initiatives to encourage voluntary assurance and coming up with guidelines in that regard (Velte & Stawinoga, 2017).

The calls and demands for ESG assurance have created an opportunity for the accounting profession with regards to ESG issues. Regardless of the argument that accountants’ engagement in the assurance of ESG disclosures is emerging (Fernandez-Feijoo, Romero & Ruiz, 2016), the phenomenon is not entirely shocking. Evidence exists in literature to show that there have been predictions of the expanding roles of accountants. The American Institute of Certified Public

Accountants (AICPA) for example in 2015 predicted that the accountants’ role will soon go beyond the traditional financial statement audit. O’Dwyer et al. (2011) confirm this by stressing that the recent years have seen a rise in accountants providing assurance for ESG disclosures. Similar arguments are advanced by Fernandez-Feijoo, Romero & Ruiz (2015). In spite of the significant role of the accountant in ESG assurance, literature proves that they are not the only players or service providers in ESG assurance services (Marnet, Gwilliam, & Teng, 2014). Accountants identified include auditors both internal and external (Soh & Martinov-Bennie, 2015; Hummel et al., 2017). Other assurance providers identified include sustainability consultants, engineers, Non-Government Organizations, stakeholder panels etc. (Martinez-Ferrero & Garcia- Sanchez, 2016) who have equally proved to be gaining dominance in providing ESG assurance. In fact, concerns have been raised regarding the skills and ability of accountants to provide ESG assurance (Wong & Millington, 2014) with Pollock and D’Adderio (2012) showing that it was likely the profession could be left behind going forward. The mixed and varied views on accountants providing assurance for ESG disclosures leave much to be desired and provides opportunity for the current study.