Honesty vs. Compliance: Patagonia Through the Lens of CSRD and IFRS
After the reaction to the phrase “nothing we do is sustainable,” and the subsequent debate around transparency and reporting expectations, a familiar concern emerged:
Would this level of honesty survive under today’s regulatory requirements?
The concern is understandable—but it rests on a flawed assumption.
It assumes that regulatory compliance requires optimism, polish, or reassuring narratives.
It does not.
What regulation requires is something both more technical and more demanding: discipline.
What Regulation Actually Demands
Under the Corporate Sustainability Reporting Directive (CSRD), companies are required to disclose sustainability-related information that is consistent, traceable, and decision-useful. CSRD itself is a regulatory framework; the technical substance is provided through sustainability reporting standards.
At the global level, the International Financial Reporting Standards Sustainability Disclosure Standards—IFRS S1 and IFRS S2—define how sustainability-related risks, opportunities, and impacts should be identified, explained, and connected to strategy and governance.
Neither CSRD nor the underlying sustainability standards require companies to:
claim sustainability,
demonstrate positive performance,
or show linear improvement over time.
What they require is clarity about how decisions are made, what risks and limitations exist, and how those realities are governed.
The Real Tension: Narrative Freedom vs. Traceability
The tension many organizations experience is not between honesty and compliance. It is between narrative freedom and traceability.
Narratives allow emphasis and interpretation. Regulation requires that statements can be followed back to:
underlying assessments,
decision-making processes,
assigned responsibilities,
and internal controls.
A statement such as “nothing we do is sustainable” is not inherently incompatible with regulatory disclosure. The question is whether the organization can demonstrate:
how that assessment was reached,
how it informs strategic choices,
and how it is reflected in governance and risk management.
When those linkages exist, honesty is not a problem.
When they do not, the issue is not tone—it is structure.
Why Regulation Does Not Require Optimism
A persistent misconception is that sustainability regulation expects positive trajectories.
In reality, both global and European sustainability standards are built on the opposite premise: sustainability information must be neutral, complete, and decision-useful, even when it is uncomfortable.
What regulation challenges is not negative information, but selective storytelling—the omission or dilution of material risks, trade-offs, or limitations to preserve a reassuring narrative.
In this sense, regulation is not an obstacle to honest disclosure. It is a safeguard against incoherence.
Consistency Matters More Than Performance
One of the most important shifts introduced by current sustainability regulation is the prioritization of internal consistency.
Regulators and standard-setters are less interested in whether performance is “good” or “bad” than in whether:
disclosed risks align with strategy,
targets align with governance arrangements,
and explanations of progress—or lack of progress—align with actual decision logic.
Organizations are not penalized for acknowledging trade-offs, constraints, or limited progress. They are exposed when those realities are disconnected from strategy, governance, or controls.
Perfection is not required. Alignment is.
Uncertainty Is Not a Reporting Failure
Another area where practice often diverges from regulatory intent is uncertainty.
Many organizations still treat uncertainty as something to minimize or hide, out of concern for credibility. Sustainability standards take a different view. Judgement, estimation, and uncertainty are expected features of sustainability disclosure, not weaknesses—provided they are explained transparently.
Where data is incomplete or outcomes are uncertain, the expectation is not false precision, but clarity about:
what is known,
what is not known,
why uncertainty exists,
and how it is being managed.
This is not a loophole. It is a core element of decision-useful information.
Climate Disclosure Reinforces the Same Logic
Climate disclosure requirements make this discipline even more explicit.
Organizations are expected to explain climate-related assumptions, transition planning, resilience considerations, and significant areas of uncertainty. Again, the emphasis is not on optimistic outcomes, but on whether climate-related risks and responses are understood, governed, and coherently connected to strategy.
What This Means for Sustainability Teams
For practitioners, the implication is clear.
Compliance does not require sanitizing reality. It requires organizing it.
The real work lies in building systems that can:
absorb uncomfortable information,
translate it into strategic choices,
and reflect it consistently across disclosures.
When governance is weak, transparency feels risky and regulation feels punitive.
When governance is strong, both become stabilizing forces.
Regulation as a Test of Maturity
The debate triggered by the Patagonia statement often frames regulation as a constraint on honesty.
A more accurate interpretation is that regulation tests whether honesty is supported by structure.
CSRD, IFRS S1–S2, and ESRS do not ask organizations to sound optimistic. They ask them to be disciplined, coherent, and accountable.
In sustainability reporting, that discipline is often the difference between credibility and contradiction.
Regulatory Anchor — IFRS Sustainability Disclosure Standards
IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information
Neutrality and faithful representation
IFRS S1 ¶11 — Fair presentation and faithful representation
IFRS S1 Appendix D — Qualitative characteristics of useful information: neutrality
Connected and decision-useful information
IFRS S1 ¶21 — Requirement for connected information across governance, strategy, risk management, and metrics
IFRS S1 ¶25 — Core content requirement and decision-usefulness
Strategy, trade-offs, and progress
IFRS S1 ¶33(c) — Disclosure of trade-offs considered in strategic decisions
IFRS S1 ¶33(b) — Disclosure of progress against plans, quantitative or qualitative
Uncertainty and qualitative disclosure
IFRS S1 ¶38–40 — Measurement uncertainty and qualitative disclosure relief
Materiality and completeness
IFRS S1 ¶17 — Definition of material information
IFRS S1 ¶14(b) — Additional information required for understanding
IFRS S2 — Climate-related Disclosures
IFRS S2 ¶22(a)(ii) — Significant areas of uncertainty affecting climate strategy and resilience
IFRS S2 ¶14(c) — Progress against climate transition plans
Regulatory Anchor — ESRS
(Based on the latest ESRS draft published in November 2025)
ESRS 1 — General Requirements
Objective, neutrality, and decision-usefulness
ESRS 1 ¶3 (p.4) — Objective of the sustainability statement: fair presentation of material impacts, risks and opportunities; decision-useful information
ESRS 1 ¶6 (p.4) — ESRS do not mandate behaviour or outcomes, except for reporting-related behaviour
Connected information and internal coherence
ESRS 1 Chapter 9, ¶96–99 (p.25) — Requirement for connected information between sustainability disclosures, strategy, governance and financial reporting assumptions
Judgement, uncertainty, and limitations
ESRS 1 ¶89 (p.19) — Disclosure of judgements, estimates, measurement and outcome uncertainty
ESRS 1 Chapter 7.4, ¶90–94 (pp.21–22) — Use of reasonable and supportable information; qualitative explanation where data is incomplete
ESRS 2 — General Disclosures
Governance and internal controls
ESRS 2 GOV-4 ¶6 (p.6) — Disclosure of processes, controls and procedures to identify, manage and oversee material impacts, risks and opportunities
ESRS E1 — Climate Change
Progress, lack of progress, and absence of plans
ESRS E1 DR E1-1(e) ¶11(e) (p.4) — Explanation of progress or lack of progress in implementing plans and actions
ESRS E1 ¶12 (p.4) — Explicit disclosure required where no transition plan exists
