Exploring the nexus between environmental initiatives and audit fees: The moderating role of supplier ESG and environmental management training

Abstract

As companies increasingly adopt sustainable practices to enhance corporate reputation and regulatory compliance, the associated costs, including green product innovation and environmental auditing, often lead to higher audit fees. This study investigates the impact of environmental initiatives on audit fees, with a focus on the moderating effects of Supplier ESG Training (SESGT) and Environmental Management Training (EMT) in selected Western European countries. Analyzing a sample of 281 firms across Austria, Germany, France, the Netherlands, Switzerland, Belgium, Luxembourg, and Monaco from 2014 to 2023, the findings reveal that environmental initiatives increase audit fees, but SESGT and EMT programs mitigate this effect by reducing audit risks and efforts. Additionally, firms with an environmental management team experience a stronger relationship between environmental initiatives and audit fees, while this effect is weaker in firms without such a team. To analyze the data, a dynamic panel data model is employed, applying the Generalized Method of Moments (GMM) estimator to control for endogeneity and omitted variable bias. This study provides critical insights for firms, auditors, and regulators by demonstrating how supplier ESG and environmental training can mitigate the audit cost burden of environmental initiatives, reducing audit risks while enhancing corporate accountability.