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Can Management Reduce Legal Liability for Greenwashing with Independent Assurance?

Sat, October 5, 3:30 to 5:00pm, TBA

Abstract

We examine how obtaining independent assurance affects management’s legal liability for greenwashing in corporate social responsibility reporting when the underlying claims subsequently prove to be inaccurate. Leveraging accountability theory, we predict that independent assurance will provide more legal protection for greenwashing that involves acts of omission than greenwashing that involves acts of commission. Experimental evidence not only supports this prediction, but also finds that assurance does not provide any legal protection for acts of commission. Supporting these results, we find that acts of commission eliminates the credibility/transparency enhancement of assurance whereas some credibility/transparency enhancement persists for acts of omission. These results should give regulators some comfort that management cannot reduce its responsibility for the material accuracy of explicit claims made in CSR reporting by obtaining assurance, but also some concern that management could use independent assurance as legal protection for less than forthcoming and misleading CSR reporting.

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