The Impact of Environmental, Social, and Governance (ESG) Disclosures on Audit Fees

Abstract

This study investigates the impact of Environmental, Social, and Governance (ESG) disclosures on audit fees, offering new insights into the role of non-financial reporting in shaping auditor–client contracting. Using a mixed-methods approach that integrates panel econometric modeling with content analysis, the research analyzes data from listed firms between 2018 and 2023. The results reveal that ESG disclosures are generally associated with higher audit fees, reflecting increased engagement risk, litigation exposure, and audit effort. However, this effect is not uniform. Firms with credible ESG performance, strong governance mechanisms, and externally assured sustainability reports experience significantly lower incremental audit fees, as these practices reduce information asymmetry and enhance disclosure reliability. Industry-level analysis indicates that environmentally sensitive sectors are subject to greater fee increases, while regulatory shocks further amplify the audit pricing effect. Conversely, governance quality, auditor size, and assurance services emerge as key mitigating factors. Visual evidence from scatterplots, line graphs, and hybrid models further reinforces the heterogeneous impact of ESG disclosure on audit pricing. The study contributes to the auditing and sustainability literature by demonstrating that ESG disclosures function both as risk enhancers—by expanding auditors’ verification scope—and as risk mitigators—by signaling transparency and accountability. The findings carry practical implications for corporate managers, who are encouraged to invest in credible ESG practices and assurance, for auditors integrating ESG into risk assessments, and for regulators designing disclosure frameworks. Overall, this research underscores the evolving role of ESG in shaping audit markets, highlighting its significance for assurance, governance, and policy.