The Rhetoric–Reality Gap in Corporate Sustainability

Corporate sustainability disclosure is examined here as an accountability system rather than as evidence of performance. This post considers what sustainability disclosures can and cannot establish, where corporate climate commitments can diverge from demonstrated action, and the measurement and assurance limitations that make that divergence difficult to identify. The central argument is that disclosure is necessary for accountability but is not sufficient to establish sustainability performance.

By Kateule Sydney — Researcher and Writer | Last Fact-Checked: 2026-10-06 | Published by Kat-Syd Resources Hub

Disclosure is necessary for accountability but is not sufficient to establish sustainability performance.

Table of Contents

• 1. What Sustainability Disclosure Can and Cannot Establish
• 2. Corporate Climate Commitments: Ambition Versus Demonstrated Action
• 3. Measurement Problems Behind the Gap
• 4. The Problem With ESG Ratings
• 5. Assurance: Necessary but Not Sufficient
• 6. Scope 3 and the Limits of Measurement
• 7. The Reporting Regime Is Changing
• 8. What Would Narrow the Rhetoric-Reality Gap
• Conclusion
• References

1. What Sustainability Disclosure Can and Cannot Establish

Corporate sustainability disclosure provides information about environmental, social, and governance matters to investors, regulators, customers, employees, civil-society organisations, and other stakeholders.

The basic premise is straightforward: better information can improve decision-making and accountability. The ISSB standards, for example, are intended to provide investors with comparable information about sustainability-related risks and opportunities, while IFRS S2 establishes requirements for climate-related disclosures, including greenhouse-gas emissions.

But disclosure should not be confused with verification.

A company can accurately disclose a target without having achieved the underlying environmental outcome. It can report an emissions-intensity reduction while its absolute emissions remain unchanged or increase. It can disclose the use of carbon credits without those credits representing reductions in the company’s own reported emissions. And an assurance statement does not necessarily mean that every figure in a sustainability report has received the same level of scrutiny as a financial statement.

Research on corporate social-responsibility reporting has long raised this distinction. Michelon, Pilonato, and Ricceri found that reporting practices such as the use of guidelines, stand-alone reports, and assurance did not automatically translate into higher disclosure quality in their sample. The finding supports caution about treating the existence of reporting practices as evidence of substantive accountability.

The appropriate conclusion is not that sustainability reporting is ineffective. Rather, reporting creates an information infrastructure whose usefulness depends on the quality of measurement, definitions, verification, and comparability built into it.

2. Corporate Climate Commitments: Ambition Versus Demonstrated Action

One of the clearest areas in which the rhetoric-reality problem can be examined is corporate climate policy.

The NewClimate Institute and Carbon Market Watch Corporate Climate Responsibility Monitor provides a useful example because it evaluates corporate climate strategies against explicit criteria rather than simply counting how many companies have published targets.

The 2023 assessment examined the climate strategies of 24 major multinational companies. It evaluated emissions tracking and disclosure, emissions-reduction targets, reductions in companies’ own emissions, and approaches to unabated emissions, including carbon contributions and offsetting. The assessment found that 15 of the 24 companies had climate strategies rated as having low or very low integrity, while only a small minority demonstrated practices judged to represent stronger climate leadership.

The 2024 assessment expanded the sample to 51 major companies. It found that the collective ambition of companies’ 2030 and net-zero targets had improved, but that most companies still fell short of the emissions reductions considered necessary for a 1.5 degrees Celsius-consistent pathway. The report also identified continuing concerns involving scope 3 emissions, carbon credits, removals, and other accounting approaches.

These findings should be interpreted carefully. The Corporate Climate Responsibility Monitor is an assessment produced by research and advocacy organisations, not a randomised academic experiment. Its conclusions therefore do not establish that the companies concerned deliberately misrepresented their performance.

What the reports establish is narrower: when corporate climate strategies are assessed against specified integrity criteria, substantial weaknesses can remain between stated ambition and the level of action demonstrated by the available evidence. That distinction matters.

Targets are not outcomes. The growth of science-based targets illustrates another aspect of the problem. The Science Based Targets initiative’s 2023 Monitoring Report recorded 4,205 companies and financial institutions with validated science-based targets by the end of 2023, representing a 102 percent increase from the end of 2022. The report documents rapid expansion in the adoption of science-based targets. It does not, however, establish that every company with such a target was on track to achieve it.

A target is a commitment or planning instrument; it is not evidence that the underlying environmental outcome has already occurred. Research on corporate climate commitments also indicates that external pressure and reputational considerations can influence companies’ decisions to adopt climate commitments. This helps explain why the number of commitments can grow faster than evidence of completed emissions reductions.

The appropriate analytical sequence is therefore: commitment, then implementation, then measured progress, then independently supported outcome. Confusing these stages is one of the easiest ways to overstate corporate sustainability performance.

3. Measurement Problems Behind the Gap

Several measurement problems make corporate sustainability claims difficult to compare.

Absolute emissions versus emissions intensity. An emissions-intensity metric expresses emissions relative to another variable, such as revenue or production. Such measures can be useful for assessing efficiency, but they do not necessarily show whether total emissions are falling.

For example, if a company’s emissions intensity falls by 20 percent while its output increases by more than 20 percent, its absolute emissions may still rise. Both statements can therefore be mathematically correct. This is why absolute and intensity targets should not be treated as interchangeable measures of climate performance. Where the objective is to assess whether a company’s total reported emissions are increasing or decreasing, absolute emissions remain essential.

Research on corporate climate targets has examined this distinction. Björn, Lloyd, and Matthews found that different methods for setting science-based targets can produce materially different implications for corporate emissions pathways. Their analysis demonstrates why the methodology behind a target matters, rather than simply the percentage reduction stated in the headline target.

The policy implication is straightforward: where the objective is to assess contribution to atmospheric emissions, absolute emissions remain an essential measure alongside intensity.

Carbon credits and offsetting. Carbon credits introduce another measurement problem. A company may reduce its own emissions and separately purchase credits associated with reductions or removals elsewhere. Those activities are not necessarily equivalent. They involve different claims about what the company itself has achieved and what mitigation has occurred outside its operations.

Research on the environmental integrity of carbon-market mechanisms identifies risks involving accounting, the quality of units generated, the ambition and scope of mitigation targets, and incentives created by market mechanisms.

The implication for corporate reporting is that companies should distinguish clearly between gross emissions reductions within their own inventories; emissions reductions or removals occurring elsewhere; purchased carbon credits; and residual emissions for which a company has made a separate climate contribution. Treating all four categories as though they represented the same physical reduction would obscure rather than clarify performance.

Target-setting methods and baselines. Corporate climate targets also depend on how the target itself is constructed. Björn, Lloyd, and Matthews examined seven methods for setting science-based emission targets and found that the methods differ in their allocation principles, required company variables, and assumptions about global emissions pathways. Their modelling showed that different methods can produce different corporate target pathways. This does not mean that every corporate target is misleading. It means that the existence of a target is not enough to establish its ambition or comparability.

A defensible assessment therefore needs to examine at least the baseline, emissions boundary, target year, target-setting methodology, treatment of scope 3 emissions, and treatment of exclusions and credits.

4. The Problem With ESG Ratings

The measurement problem extends beyond climate disclosures to broader ESG ratings.

Different rating agencies can evaluate the same company very differently. Berg, Kölbel, and Rigobon analysed six major ESG rating providers and found substantial divergence between ratings. They attributed the divergence primarily to differences in measurement and scope rather than simply differences in weighting. In their decomposition, measurement accounted for 56 percent of divergence, scope for 38 percent, and weighting for 6 percent.

This finding does not establish that ESG ratings are useless. It establishes something more specific: an ESG score is not necessarily a neutral measurement of a single objectively fixed quantity.

A rating can be internally consistent while still differing from another rating because the two providers measure different attributes, use different indicators, or assign different meanings to the same underlying information.

Consequently, users should ask not simply, what is this company’s ESG score, but also: What is being measured? Which data are used? What is excluded? How are missing data treated? How are different indicators weighted? And is the measure intended to represent risk, impact, management quality, or something else?

The last question is particularly important because an ESG rating and an environmental-impact measure are not necessarily the same thing.

5. Assurance: Necessary but Not Sufficient

Independent assurance can strengthen confidence in sustainability information, but assurance should not be treated as synonymous with a financial-statement audit. The distinction matters because assurance engagements can vary in scope, criteria, materiality, procedures, and level of assurance.

Earlier research on CSR reporting found that assurance did not automatically correspond to higher disclosure quality. That finding remains relevant because the mere presence of an assurance statement does not tell users everything about what was examined or how rigorously it was tested.

The assurance environment is nevertheless changing. In November 2024, the IAASB issued ISSA 5000, a dedicated international standard for sustainability-assurance engagements. The standard is designed to apply across sustainability topics and reporting frameworks and supports both limited- and reasonable-assurance engagements.

ISSA 5000 is therefore an important development in the architecture of sustainability reporting. The development of ISSA 5000 provides a common foundation intended to support more consistent sustainability assurance.

But stronger assurance does not eliminate measurement problems upstream. An assurance practitioner can provide assurance over information prepared according to specified criteria; assurance does not itself determine whether those criteria are the most informative way to represent sustainability performance.

The sequence remains: good measurement criteria, then reliable data, then appropriate reporting, then effective assurance. Assurance cannot fully compensate for weaknesses in the first three stages. For the governance mechanisms relevant to risk, procurement, and accountability, see my post on Risk, Procurement, and Stakeholder Management.

6. Scope 3 and the Limits of Measurement

Scope 3 emissions present a particularly difficult measurement challenge because they arise across a company’s value chain rather than solely from its own operations.

The Greenhouse Gas Protocol Corporate Value Chain Scope 3 Accounting and Reporting Standard provides a structured approach for companies to account for indirect value-chain emissions.

The difficulty is that value-chain data can involve suppliers, customers, estimates, industry averages, and modelling assumptions. The further a measurement moves from directly controlled operations, the more dependent it can become on information supplied or estimated by other parties.

This does not make scope 3 accounting invalid. It means that uncertainty and methodological assumptions should be visible to users of the information.

The same principle applies beyond carbon. Social and governance performance often involves concepts that are more difficult to reduce to a single quantitative measure. Labour conditions, human rights, governance quality, community effects, and organisational culture may require a combination of quantitative indicators, qualitative evidence, and context.

The solution is not necessarily to abandon measurement. It is to avoid pretending that every material sustainability issue can be represented by one universally comparable number.

7. The Reporting Regime Is Changing

The reporting landscape is moving toward greater standardisation in some respects, while the standards themselves continue to evolve.

The ISSB issued IFRS S1 and IFRS S2 in 2023 as a global baseline for sustainability-related financial disclosures. IFRS S2 establishes requirements for climate-related disclosures, including greenhouse-gas emissions.

The European Union has also developed the CSRD and ESRS. However, the European framework has been subject to significant revision. On 3 July 2026, the European Commission adopted revised ESRS designed to reduce administrative burdens while maintaining sustainability disclosures covering environmental, social, and governance matters. The revised standards reduce the number of mandatory datapoints by more than 60 percent and the total number of datapoints by more than 70 percent. They remain subject to the applicable EU scrutiny process before taking effect.

These developments make the original argument more nuanced than a simple claim that disclosure rules do not work. Disclosure standards can improve comparability, consistency, and availability of information. What they cannot guarantee by themselves is that a company’s sustainability strategy will produce the desired environmental or social outcome.

That distinction should remain at the centre of corporate sustainability analysis.

8. What Would Narrow the Rhetoric-Reality Gap

The evidence suggests that a stronger reporting regime should not simply demand more information. It should make the information more decision-useful.

Report absolute and intensity metrics together. Companies should disclose absolute emissions alongside relevant intensity measures and explain material differences between the two. This would reduce the risk that efficiency improvements are mistaken for reductions in total environmental impact.

Separate operational reductions from external credits. Reports should clearly distinguish gross emissions reductions from carbon credits, removals, and other forms of external mitigation. This would make it easier to determine what has happened within the company’s own emissions inventory.

Make target methodology transparent. A target should be accompanied by its baseline year, organisational and emissions boundaries, target-setting methodology, treatment of scope 3 emissions, and treatment of credits or removals. The research on science-based target methodologies demonstrates why the method matters, not merely the percentage reduction stated in the headline target.

Strengthen assurance. Where sustainability information is material, users should be able to identify clearly which information has been assured, against which criteria, and at what level of assurance. The development of ISSA 5000 provides a common foundation intended to support more consistent sustainability assurance. The standard becomes effective for applicable sustainability-assurance engagements for periods beginning on or after 15 December 2026, subject to its requirements and adoption arrangements.

Treat ratings as measurements, not verdicts. Investors and other users should examine the methodology behind ESG scores rather than treating a single rating as a definitive representation of corporate sustainability performance. The divergence documented by Berg, Kölbel, and Rigobon makes this particularly important.

Measure trajectories, not just annual snapshots. Long-term sustainability commitments cannot be evaluated adequately from a single reporting year. Users need to see whether actual performance is moving consistently toward the stated target. This does not require abandoning annual reporting. It requires placing annual results within a multi-year trajectory.

Conclusion

The evidence does not support the sweeping proposition that corporate sustainability reporting is simply corporate rhetoric. Nor does it support the opposite assumption that the existence of a sustainability report demonstrates substantive performance.

A more defensible conclusion lies between those extremes.

Corporate sustainability reporting has become increasingly standardised, and important institutions including the ISSB, the European Union, and the IAASB are strengthening the infrastructure for disclosure and assurance.

At the same time, important measurement problems remain. Corporate climate commitments can outpace demonstrated emissions reductions. Target-setting methodologies can produce different interpretations of ambition. Carbon credits and removals can complicate the distinction between a company’s own emissions reductions and mitigation elsewhere. ESG ratings can diverge substantially because providers measure different things in different ways. And assurance can strengthen confidence in reported information without resolving weaknesses in the underlying measurement framework.

The strongest conclusion, therefore, is not that disclosure has failed. It is that disclosure should be understood as one component of an accountability system rather than as evidence of performance in itself.

The critical question is no longer simply whether a company has published a sustainability report or announced a net-zero target. It is whether the claim can be traced through a transparent chain of definitions, data, methodology, implementation, measurement, and independent assurance.

That is where the rhetoric-reality gap becomes measurable. And that is also where it can begin to narrow.

References

• Aldy, J. E., Bolton, P., Kacperczyk, M. T., and Halem, Z. M. (2023). Behind schedule: The corporate effort to fulfill climate obligations. Journal of Applied Corporate Finance, 35(2), 26-34.
• Berg, F., Kölbel, J. F., and Rigobon, R. (2022). Aggregate Confusion: The Divergence of ESG Ratings. Review of Finance, 26(6), 1315-1344.
• Björn, A., Lloyd, S., and Matthews, D. (2021). From the Paris Agreement to corporate climate commitments: Evaluation of seven methods for setting science-based emission targets. Environmental Research Letters, 16(5), 054019.
• Bolton, P., and Kacperczyk, M. (2021). Do investors care about carbon risk? Journal of Financial Economics, 142(2), 517-549.
• International Auditing and Assurance Standards Board. (2024). International Standard on Sustainability Assurance 5000.
• International Financial Reporting Standards Foundation and International Sustainability Standards Board. (2023). IFRS S1 and IFRS S2.
• Kotsantonis, S., Pinney, C., and Serafeim, G. (2016). ESG integration in investment management. Journal of Applied Corporate Finance, 28(2), 10-16.
• Michelon, G., Pilonato, S., and Ricceri, F. (2015). CSR reporting practices and the quality of disclosure. Critical Perspectives on Accounting, 33, 59-78.
• NewClimate Institute and Carbon Market Watch. (2023). Corporate Climate Responsibility Monitor 2023.
• NewClimate Institute and Carbon Market Watch. (2024). Corporate Climate Responsibility Monitor 2024.
• Science Based Targets initiative. (2024). SBTi Monitoring Report 2023.
• Schneider, L., and La Hoz Theuer, S. (2019). Environmental integrity of international carbon market mechanisms. Climate Policy, 19(3), 386-400.
• World Resources Institute and World Business Council for Sustainable Development. (2011). Greenhouse Gas Protocol Corporate Value Chain Scope 3 Standard.

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Written by Kateule Sydney — Researcher and Writer

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