Sustainability disclosure: transparency or smoke and mirrors?

Purpose This study aims at advancing the theory of managerial intent and strategic choice with regards to disclosure transparency that companies adopt in sustainability reporting under mandatory disclosure regulations. It investigates whether, and how, corporate performance and governance mechanisms influence the transparency of sustainability reports. Design/methodology/approach The study provides an analysis of sustainability reports published by Italian listed companies, following the implementation of the European Union (EU) Directive 2014/95/EU on sustainability disclosure. Both textual and quantitative analysis are conducted to classify disclosure strategies and to investigate the relationship between transparency levels, corporate performance indicators, and governance structures. Findings The results of this study indicate that firms operating within mandatory disclosure settings do not consistently align the tone of their reporting with their underlying performance and, thus, tone may be used strategically, potentially to obscure unfavourable performance or to manage stakeholder perceptions. Furthermore, the analysis highlights substantial deficiencies in the readability of corporate disclosures. Originality/value This study advances knowledge on the categorization of transparency disclosure strategies. It enhances understanding of the importance of linguistic choices in the reporting of sustainability-related information. Moreover, it provides evidence on the role of managerial disclosure choices within a context of legal obligations. Findings offer practical recommendations for managers, policymakers, and stakeholders seeking to improve the effectiveness and credibility of sustainability disclosures in regulated environments.