Unveiling Differences in ESG Adoption: A Comparative Analysis of the Big Four Auditors

In recent years, there has been a growing concern for achieving sustainable development, emphasizing the necessity to balance human needs with the preservation of natural resources. Auditors play a pivotal role in influencing companies’ sustainability practices through information evaluation, regulatory compliance, advice, and the promotion of best practices. This study seeks to examine how auditor tenure and audit fees impact the ESG (Environmental, Social, and Governance) practices adopted by audited companies. Additionally, the research includes an analysis of the Big Four auditing firms in the United States to assess the role of corporate culture in this context. To achieve this goal, we conducted an empirical investigation utilizing data from companies listed in the S&P 500 index between 2012 and 2021. We employed panel data analysis with fixed effects regressions to address endogeneity concerns and minimize potential issues associated with omitted variables. The results indicate that higher audit fees are positively associated with greater ESG performance. Similarly, longer auditor tenure is correlated with increased ESG practices, suggesting an enhancement in audit quality over time. Furthermore, the study reveals that the influence of audit fees and tenure on ESG practices is influenced by internal factors within auditing firms. The research supports the idea that imposing limitations on fees or mandatory auditor rotation may not be advisable, as it could potentially hinder ESG implementation. Policymakers should consider the ethical culture within audit firms as a crucial factor in enhancing ESG practices among audited companies, thereby contributing to the achievement of sustainable development.