Mandatory sustainability reporting: The difference between information and results according to the EU directive
CER's PhD student Ammarah Tariq maps whether mandatory sustainability reporting increases EU companies' transparency regarding their sustainability work and the results are reported in the article "Mandatory Sustainability Reporting and the Disclosure-Performance Gap: Insights from the EU Directive"
The study, published in the journal Meditari Accountancy Research, examines whether mandatory sustainability reporting increases corporate transparency, as measured by the difference between disclosures and performance, using the implementation of the European Union's Non-Financial Reporting Directive 2014/95/EU (NFRD) as a quasi-natural experiment.
In the period following the implementation of the EU Directive, EU companies showed a shift towards a wider gap between disclosure and performance, i.e. symbolic transparency. In addition, common law countries tend to discourage substantive (symbolic) transparency, and industries that are under higher scrutiny by stakeholders engage in symbolic transparency.
The study evaluates how the directive affects this gap, where a decrease reflects substantial transparency and an increase indicates symbolic transparency or greenwashing. The study further examines how stakeholder pressure at country and industry level moderates companies' compliance with sustainability-related regulations.
The author concludes that the main focus should be on the consistency between sustainability reports and actual results, rather than solely on the quantity of disclosures. It stresses that this alignment must be prioritised both in academic research and in policy-making, so that regulations truly increase transparency instead of encouraging symbolic reporting or greenwashing.
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