Strategic Silence? Mandatory Sustainability Disclosure and the Discipline of Corporate Over‐Claiming Under the European Union Non‐Financial Reporting Directive

ABSTRACT This study examines whether mandatory sustainability disclosure under the European Union Non‐Financial Reporting Directive (NFRD) reduces corporate greenwashing among listed European firms, with a focus on the 500‐employee compliance threshold. We conceptualise greenwashing as strategic decoupling between sustainability communication (talk) and environmental performance (walk). Using merged LSEG Workspace and Orbis data, we estimate a local sharp regression discontinuity design around a predetermined 2016 employment baseline, focusing on 2019–2025 when the key variables are sufficiently observed. Crossing the threshold is associated with a robust decline in a residual‐based excess‐talk measure. Evidence for a standardised talk–walk gap is directionally similar but less precise. Decomposition tests show that the discontinuity sits on the communication side: firms above the threshold reduce sustainability claims, while emissions‐related performance does not exhibit a comparable short‐run shift. We do not detect significant local moderation by external monitoring or organisational complexity, nor statistically significant short‐horizon discontinuities in ESG controversies, valuation, or cost of capital. The evidence is consistent with a sequencing effect in which disclosure pressure disciplines over‐claiming before it produces observable operational change or downstream market consequences.