Today, many companies are legally required to disclose information relating to sustainability and, in particular, to climate change. This information includes data on how climate change may affect the profitability of the company’s business (for example, our business depends on the narrow strip of land of the Mar Menor, an area that may be flooded by sea‑level rise in twenty years) and, at the same time, on how the company’s activity affects the climate and the environment (how much CO₂ we produce through our operations). This is known as “double materiality”: financial materiality in the first case, and impact materiality in the second.
To ensure that the information disclosed by companies is reliable, so‑called “sustainability assurance providers” (SAPs) have emerged. They are to sustainability what auditors are to annual accounts. Just as auditors must certify that a company’s accounts present a true and fair view of its financial position, SAPs review the climate and environmental information published by companies and certify whether it has been prepared in accordance with certain rules and standards and whether it is reasonably reliable.
But this is where the similarities end. As the authors cited at the end of this post explain, financial auditing has existed for over a century and is governed by highly detailed rules and stable protocols that have been validated by practice. This means that when an auditor issues a qualified opinion or states that the accounts do not present a true and fair view of the company’s financial position, there is a correspondence with reality—a reality check—because companies with qualified audit opinions are riskier investments and go bankrupt more often. Frequently, such qualifications even signal the existence of embezzlement, tax fraud, or other criminal or disloyal conduct by management. This means that financial auditing has real value for investors and the general public because it reveals information that affects decisions about whether to invest in a company and how much one is willing to pay for its shares.
Things could hardly be more different in the case of SAPs, an invention of the super‑regulator—and “over‑regulator”—that the European Union has become.
In theory, the function of SAPs is to review climate information and issue an opinion on whether it has been prepared in accordance with certain standards; formally, therefore, they perform the same function as financial auditors: independent third parties who certify information that others cannot or do not wish to verify themselves. However, as the authors explain, the analogy does not hold.
First, in the United States SAPs are consultancy firms, engineering firms, and the like, which do not rely on a common method validated by experience.
Second, accounting principles and rules have been “verified” through a century of application and are continuously refined to improve the accuracy with which they capture the company’s true financial position. There are no comparable principles or rules for measuring how sustainable a company is from the perspective of “double materiality.” Both the type of information reviewed and the rigor applied vary, which makes the “certificates” issued by SAPs of very limited value and, above all, hardly comparable to one another—yet comparability is essential if such certifications are to help investors make rational investment decisions.
But the central argument of the article is that, in the ESG domain, several conditions converge that erode both the incentives of SAPs and the mechanisms that should discipline them.
First—and this is the most interesting point—the value of this information for the market, that is, for third parties, is, in the case of impact information, largely symbolic. Like a homeopathic remedy, these audits “work” (they produce the expected effect) even when they lack any real capacity to adjust a company’s share price. In other words, they “work” not because they convey reliable information, but because they perform a symbolic function: they allow investors and companies to construct a narrative of environmental responsibility, to feel aligned with certain values, or to comply formally with regulatory or reputational expectations, regardless of whether the information is relevant in the strong sense—that is, capable of affecting the price of the company’s shares or bonds.
As for the technical complexity of climate information, the authors rightly do not emphasize complexity as an obstacle that prevents the market from processing it. If information is financially relevant—that is, if it can affect share prices—the market will generate specialists to process it. But, as noted, this is often not the case with ESG information. Complexity reduces the likelihood of ex post scrutiny, not because “the market does not understand,” but because no one has economic incentives to understand.
Third, and this is perhaps the most important argument: what happens if the information is incorrect—for example, if the impact of the company’s activity on third parties is greater or smaller than what is stated in the sustainability report? In many cases, the answer is: nothing. Why? Because users of the information do not bear significant private costs when an assurance is wrong. This is particularly true for climate impact information. If a company understates its emissions or overstates its environmental commitments, but that information is not financially material (that is, it does not affect the company’s profits), the investor who has purchased its shares does not suffer a direct economic loss. In the absence of private harm, there are no incentives to litigate, investigate, or sanction the assurance provider. Once again, the system can continue to function—apparently—even if the information is inaccurate.
This leads the authors to the following conclusion: the reputation of SAPs plays nothing like the same disciplinary role as reputation does for financial auditors (on the disciplinary role of auditors’ reputation and on how economies of scale in reputation explain why audit firms are extremely large companies, see Paz‑Ares Rodríguez, José Cándido, *La ley, el mercado y la independencia del auditor*, 2016). If SAPs do not lose clients when they “get it wrong” because there is no clear way to verify failure and no consequences for having failed, they have little incentive to preserve their reputation—or to build one in the first place.
Nor does it appear that regulation—securities law and supervision by the CNMV and similar authorities—or litigation against large companies can solve the problem. In the United States, the route would be to impose liability on these SAPs vis‑à‑vis investors for false or misleading information (prospectus liability and the like), but this approach is ill‑suited to climate information. First, if the information does not affect firm value (financial materiality), investors will be hard‑pressed to claim they have suffered harm, and impact information in particular lacks financial effects, as already explained. But even if it did, the claimant would still have to prove that the climate information was false or misleading. This typically requires demonstrating errors in climate models, impact projections, transition scenarios, or emissions calculations. These are technically complex, contestable issues with a high degree of uncertainty. For a private plaintiff, assembling sufficiently robust evidence—and persuading a judge—is extremely difficult and costly, and those who produce the information have every incentive to avoid making strong or categorical claims.
In the article from which the post cited at the end of this entry is drawn, the authors show notable insight in identifying that the problems with SAPs do not end there. In particular, many SAPs—whom they call “green gatekeepers”—simultaneously perform two functions that are kept separate in financial auditing: they not only verify compliance with certain criteria, but also actively contribute to defining those criteria. When proprietary, opaque, or weakly tested standards are used, this dual role generates conflicts of interest, because the issue is no longer merely whether the company complies, but whether the standard itself is demanding, relevant, or lenient (motivated reasoning and the “warm glow” effect).
The authors acknowledge that European regulation has improved the formal structure and homogeneity of information, but alongside these potential benefits it would be desirable to have an explicit assessment of the costs associated with that institutional design. The article is deliberately cautious in not claiming that those benefits are large or conclusive. But if, as the authors themselves argue, incentives to produce truthful information remain weak in the sphere of impact materiality and control mechanisms remain structurally ineffective, relatively modest regulatory costs—in terms of administrative burden, resource misallocation, organizational complexity, or the risk of purely formal compliance and, above all, rent‑seeking—would suffice to call the model’s desirability into question.
Second, and relatedly, the authors appear to take as a given that improving the formal quality of information—greater standardization, greater completeness, broader coverage—is an objective that is valuable in itself. From a critical standpoint, however, one could argue that if impact information does not generate private costs or effective discipline and its verification is methodologically fragile, regulatory expansion on that front risks producing mainly bureaucratic box‑ticking rather than substantive improvements.
Finally, the article’s more original regulatory proposals—in particular, the idea of allowing assurance providers to confer “positive regulatory licenses” or normative benefits, and the suggestion of encouraging non‑profit providers—reveal a certain underlying distrust in the ability of market mechanisms to generate endogenous solutions. If there were a genuine and sustained demand for ESG certifications capable of delivering credible regulatory benefits, one might expect private forms of quasi‑licensing to have emerged spontaneously, as they did in the case of credit ratings.
Similarly, the appeal to non‑profit providers, while consistent with the literature on credence goods, raises significant risks of agency costs, capture, opacity, and “soft” corruption—for example, through donations, sponsorships, or informal influence—that the article barely considers. These criticisms do not refute the authors’ analytical framework, but they do call into question the direction of some of their normative proposals, suggesting that the problem of ESG assurance lies less in insufficient public intervention than in the currently weak link between that assurance and real economic incentives.
Luca Enriques, Alessandro Romano, Andrew Tuch, Sustainability Assurance, OBLB, abril 2026
