Tuesday, I blogged about a recent study finding that, thus far, standardized CSRD reporting has not led to better sustainability outcomes. In the blog, I noted that it is hard to draw patterns and trends from a reporting regime that has only been in place for two years. Today’s study doesn’t have that problem. Its authors, from the University of Chicago Law School, studied 15,000 reports over 25 years. Instead of examining environmental impacts, this study reviewed the reports themselves. The findings suggest that reporting practices advanced little over the past quarter century. In fact, the authors identify a trend of sustainability reports getting worse:
“Five patterns stand out. First, sustainability reporting and the adoption of external assurance and voluntary frameworks (GRI, SASB, TCFD, CDP, SBTi) surged after 2015. Second, firms often adopt multiple frameworks at once, and adoption is sticky. Third, as reporting mainstreamed, reports became less specific, less quantitative, and fluffier. Fourth, longer-reporting firms produce more concrete reports (more specific and quantitative, with more tables and less fluff) with more negative news, but these differences largely reflect which firms began reporting early and broad calendar trends rather than learning by doing. Fifth, frameworks show mixed and non-uniform associations with our measures—some with less fluff, more negative news, and more tables, but also with lower quantitative density. We find no consistent evidence that adoption leads to improvements along the dimensions we study.”
The study dives deep into the issues driving these shortcomings as well as potential fixes. The authors posit that voluntary reports are often not comparable or credible. The use of external frameworks is minimally helpful because reporters often game the metrics or report incomplete information. Mandatory reporting may seem the obvious answer. However, mandatory reporting regimes are often based on voluntary frameworks and carry many of the same baggage.
Ultimately, voluntary sustainability reports getting worse appears to be a function of their popularity rather than changes in disclosure practices. More low-quality reports flooded the market post 2015, causing the perceived decline. The study found that companies that issue high-quality reports do so consistently. Additionally, after several years of reporting, most companies plateau on report quality. So is mandatory reporting the answer? Perhaps. A comparative study of the quality gap between mandatory and voluntary reports could be the next step in answering that question.
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