True transparency or mere decoupling? The study of selective disclosure in sustainability reporting

Over the last two decades, sustainability disclosure has become a well-established practice among large and medium-sized companies. Despite the increasing number of sustainability reports published annually, concerns have arisen regarding their credibility. Skeptics view sustainability reporting as a form of decoupling - a symbolic practice disconnected from the actual practices. The purpose of this study is to investigate the phenomenon of decoupling in corporate sustainability, exemplified by selective disclosure. Drawing on the counter-accounting approach and institutional theory, we identify forms of selective disclosure and their drivers. We test our hypotheses on a sample of 333 negative events derived from MSCI's controversies database. The analysis reveals that 69 % of negative events were reported selectively indicating a prevalence of decoupling in sustainability reporting. Selective disclosure manifests in three forms: vague disclosure, avoidance, and hypocrisy. Our findings indicate a higher likelihood of selective disclosure in the areas of labor rights/supply chain and human rights/community. Additionally, companies that publish integrated reports are less likely to engage in selective disclosure. Strikingly, neither Global Reporting Initiative (GRI) guidelines nor assurance measures can effectively deter companies from engaging in selective disclosure. Our findings underscore the urgency of transitioning from a sustainability reporting practice primarily driven by business-case considerations to a more dialogic accounting approach.