Sustainability reporting is the problem, not the solution (or: The case against CSRD)
Is sustainability reporting driving real change, or is it becoming a burden that takes the energy from sustainability innovation and strategy, perpetuating sustainability-as-usual? As attention grows around the EU’s CSRD, I suggest we may be going in the wrong direction. It’s time to stop pretending reporting is the solution and start creating regulations that promote real change.
Often attributed to Albert Einstein, the adage “Insanity is doing the same thing over and over again and expecting different results” accurately describes many facets of sustainability today. Among them, sustainability reporting stands out as one of the most striking examples. The growing emphasis on reporting seems not only to deliver little to no results but also to become an obstacle to progress, with so much energy and resources invested in it. And yet, companies are being asked to do even more of it.
I believe it’s time to stop and ask: has sustainability reporting become more of a barrier to, rather than a driver of, sustainability in business?
A decade ago, EY identified two critical aspects of sustainability in business: strategy and reporting. To that, I would add a third — innovation. In recent years, reporting has become increasingly more dominant in terms of the energy, resources, and attention it requires from companies, often at the expense of the other two elements. Consider this: A recent IBM research surveying 5,000 C-suite executives found that “spending on sustainability reporting exceeds spending on sustainability innovation by 43%.” The IBM researchers suggested that “Many organizations are approaching sustainability as an accounting or reporting exercise rather than a transformation play.”
And it is not getting any better with new mandatory regulatory reporting frameworks that add more reporting workload for companies, such as the EU’s Corporate Sustainability Reporting Directive (CSRD). As Joel Makower wrote in his 2024 summary: “Regulatory mandates, both current and anticipated, have led corporate sustainability departments to focus on reporting and accountability, often detracting from the actual work of improving a company’s sustainability impacts.”
The theory of change behind sustainability reporting is broken
There’s nothing new about the fact that sustainability reporting (SR) is not working, but it is still worth mentioning. There has been a clear theory of change behind it: SR is, in theory, intended to help companies better understand, manage, and communicate sustainability information to stakeholders, particularly investors, interested in such data. Tim Mohin explained this when he was the CEO of GRI in a testimony before the U.S. Congress: “Our theory of change boils down to the axiom that ‘you manage what you measure.’ All organizations run on data. By identifying, measuring — and most importantly reporting — about the most material ESG topics, these issues will be managed, and performance will improve.”
The goal was to create a virtuous feedback loop: investors use this information to better allocate investments toward companies performing well on sustainability, providing companies with more incentives to do more on sustainability. This loop, in theory, would continue to evolve, making reporting a catalyst for sustainability progress in companies.
Well, it just doesn’t work. One of the clearest indicators of this is that the vast majority of companies today report on sustainability, yet they still show poor results in reducing their carbon emissions. KPMG reported this year that 96% of G250 companies report on sustainability, and 95% of them publish carbon targets. At the same time, reports evaluating companies’ climate action show time and again that companies are nowhere close to what is needed to reach net-zero goals (see examples here, here, and here). As McKinsey put it: “The net-zero transition is not on track and the world is at risk of falling even further behind. Current rates of emission reductions show that substantial progress is still necessary relative to where sectors need to be today to reach net zero by 2050.”
To be clear, it is not that companies do not continue to improve and show progress on emissions reductions, but the progress is too slow, too little, and, increasingly, we see cases where they are actually moving backward — either by emitting more (e.g., Google and Microsoft) or by scaling back climate and sustainability goals (e.g., Unilever, JBS, and Coca-Cola).
And is better and more robust reporting going to change that? Well, no. The reason is that companies’ unwillingness to take bolder and quicker action on climate and the ineffectiveness of SR are two sides of the same coin. Both are symptoms of sustainability-as-usual, where sustainability efforts are still subjected to a shareholder capitalism mindset. Essentially, companies are engaged in sustainability initiatives as long as they broadly align with the primacy of profit maximization and do not significantly deviate from it. Add to that the fact that companies have neither a regulatory imperative nor substantial societal pressure to reduce their emissions, which means their actions are generally voluntary and done on their own terms — that is, they address what feels comfortable rather than what is necessary.
Sustainability reporting as a catalyst of sustainability-as-usual
As I pointed out the idea that SR isn’t effective isn’t new, nor is the notion that SR mirrors sustainability-as-usual. In my book, Rethinking Corporate Sustainability in the Era of Climate Crisis, I have a chapter discussing SR and its relationships with sustainability-as-usual. I conclude the chapter with the point that “making SR considerably more effective will require to address sustainability-as-usual and the mental model it is grounded in.” This, I believe, is still the case. However, what has changed is the fact that SR not only seems to be driven by sustainability-as-usual but also acts as one of its enablers.
There are two reasons why SR is driving — not only driven by — sustainability-as-usual. The first is that it helps create a mirage of progress, falsely identifying the buzzing activity around SR in companies with taking action and making progress on climate and sustainability. With sustainability reports continuing to grow — in 2023 the average length was 82 pages, up from 70 pages in 2021 — it might seem to anyone reading them that companies are not only serious about sustainability, but are actually prioritizing it. Otherwise, how else would they have so much to report about? This tactic of drowning the reader in tons of information aims, explicitly or implicitly, to provide a sense of a serious approach to sustainability, while the reality is often far from it.
The second reason is that it crowds out energy and resources from activities that actually drive progress, such as product and business model innovation, ecosystem building, supporting customers’ shift to lower-carbon lifestyles, and engaging with suppliers to help them adopt low-carbon practices. An in-depth survey of about 180 business and sustainability leaders from all major UK sectors found out that “around 40% of sustainability professionals allocate 25–50% of their time annually solely on reporting and disclosure. There’s even a selection of firms (6%) dedicating more than 75% of their time to this activity year round.”
With so much time and resources dedicated to reporting, there is a strong case to be made that this disproportionate focus on SR dilutes the capacity of sustainability professionals to support, promote, and engage in meaningful action, thereby contributing to the incremental progress on sustainability. As Matt Price wrote last August: “With sustainability professionals meant to be activators within their business, there is a danger that the time and resource allocation turns them into accountants.”
Together, these two factors suggest that SR risks becoming more of a burden and distraction than a driver of genuine progress. By fostering the appearance of action rather than substantive change, and by promoting a sustainability culture dominated by compliance, SR perpetuates the very mindset it seeks to challenge.
The case against CSRD
“One thing that Louise and I concluded quite some years back was that there was no point in sort of corporate social responsibility if you thought of it as cleaning up individual fish, corporate fish, and putting them back into polluted, dirty waters, you have to address the market conditions and incentives within which businesses swim.” (John Elkington)
I want to be clear that SR is necessary and can be valuable. However, going back to Einstein’s adage, we continue to let it evolve under the same theory of change of better transparency will lead to more external and internal pressures to show progress on sustainability, as though this theory can actually work well if only we continue improving the reporting requirements. We continue to believe that, to use Elkington’s and Kjellerup Roper’s metaphor, better reporting can help clean the water businesses swim in.
The EU and other entities’ reliance mainly on reporting as a ‘hack’ to “address the market conditions and incentives within which businesses swim” not only doesn’t work but also perpetuates the very conditions it seeks to fix, keeping the water dirty. This is why I think it is time to stop and rethink the approach to SR, instead of continuing in the same direction just out of sheer inertia. This is why I believe the EU’s CSRD risks creating more harm than good by further crowding out innovation and strategy in favor of excessive reporting.
The CSRD aims to “ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.” Not only is the CSRD is grounded in the same theory of change, but its broad scope will require the over 50,000 companies to pay a hefty price to set up the processes and infrastructure needed to collect the required data.
One group that is certainly going to benefit from the CSRD is consulting and law firms, who are already offering their services to help companies address the CSRD requirements. At the same time, there’s also a growing critique about the regulatory burden created by the CSRD and its financial implications, especially for smaller companies covered by it as well as calls for the EU to reduce reporting requirements by 25–50%, depending on companies’ size.
Overall, the CSRD seems to further push sustainability into a compliance-based culture, where reporting becomes the end rather than the means. While it was likely designed with good intentions, that doesn’t mean the outcome isn’t poorly executed. However, perhaps it will eventually prove to be beneficial, as the disproportionate reporting burden it creates could lead to increased pressure to reassess this reporting-driven approach, prompting the realization that it’s time to adopt a new approach to reporting that could be more effective.
Rather than trying to keep sustainability reporting on par with financial reporting, it is time to refocus the efforts on transforming the environment in which companies operate. To change, for example, the fact that so many CEOs and investors ignore climate risks and opportunities, we need regulation that requires them to act on these risks and opportunities with clear goals, not mandates merely asking them to disclose these risks and opportunities.
Companies will still need to report but what if their sustainability reports were 2 pages long and limited to 10 key data points? Taking a new approach to designing SR, based on the principle of ‘less is more’ and incorporating new concepts (see, for example, Lorraine Smith’s work on matereality), could free up time and resources for companies to actually do the work on sustainability impacts.
Adding to this a shift focusing on regulating impacts rather than just reporting on them could eventually help lead companies out of the sustainability-as-usual mindset. So, can we please work to get companies to focus more on sustainability work rather than sustainability reporting? If we are serious about sustainability, it’s time to stop pretending that reporting is the answer and start creating regulations that demand real change.
Raz Godelnik is an Associate Professor of Strategic Design and Management at Parsons School of Design — The New School. He is the author of Rethinking Corporate Sustainability in the Era of Climate Crisis. You can follow me on LinkedIn.
