As climate disclosure shifts from voluntary marketing to mandatory audited standards across the globe, sustainability claims have become line items in financial statements — making greenwashing an audit failure, not just a PR crisis. Sandhya Sabapathy, founder of advisory firm Kaleidoscope, explains why the companies now facing allegations are the ones that let communications outrun controls.
When the Task Force on Climate-related Financial Disclosures (TCFD) published its voluntary disclosure recommendations in 2017, sustainability claims still lived primarily in marketing and communications territory. Ambitious, often aspirational, but optional.
What the transition from TCFD recommendations to international financial reporting standards (IFRS) S1 and S2, now mandatory in dozens of countries, represents is something more fundamental: Those same claims have become line items in audited financial statements, elevating sustainability from a reputational exercise into the same financial-legal-compliance infrastructure that prices every other dimension of performance.
This makes greenwashing an audit failure, not just a PR crisis.
The mechanism behind that failure is more mundane than most greenwashing coverage suggests, and more structural. Inside most organizations, the sustainability function is rewarded for ambitious public targets. The risk and treasury functions are rewarded for accurate scenario modeling and balance sheet protection. When those two reward structures are never put in the same room, an organization can promise in a press release to hold global warming to a safe threshold, while its own financial models quietly assume a much hotter, more damaging future — inside the same annual report, without anyone involved acting in bad faith.
This is not two teams lying to each other. It is two functions optimizing for what they are each measured on, with no governance mechanism requiring the numbers to agree or even be in conversation.
Cost of doing the translation work late
Organizations that understood TCFD’s voluntary recommendations as an early signal to redesign what they measure, not just what they say, are spending a fraction of what those now retrofitting IFRS requirements will spend. The actual work is the same, but the cost is radically different. It is the difference between proactively building audit-readiness into new processes and reactively documenting it after the processes are already live. There is no version of mandatory climate disclosure that does not reward the organizations that moved first.
EU leadership’s partial dismantling of the Corporate Sustainability Reporting Directive (CSRD) through its omnibus simplification process, which launched in February 2025 before most companies in scope had published a single report under the original standard, is a live case study in what regulatory uncertainty does to that translation work.
Companies navigating the shift between reporting waves, unsure how much regulatory and assurance burden they would ultimately carry, made a rational decision: treat the requirement as a compliance exercise, get it filed, move on. That wasn’t a cynical decision; rather it was the direct product of regulation that created uncertainty rather than direction. Organizations that had already built resilient measurement architecture underneath their TCFD disclosures absorbed the reversal as a formatting problem, while the ones still translating language into structure absorbed it as a strategic one — again.
And now, those being hit hardest by allegations — HSBC and Deutsche Bank’s DWS Group, though the list will keep growing — are the ones that allowed communications to get ahead of compliance. A tell: The first thing a litigant or a regulator will look for is the gap between what was claimed and what was controlled for.
3 questions to close the gap before exposure
- Who signed off on each of our past three sustainability reports?
- What’s our most aggressive public claim, and what’s the audit trail?
- How many quarters of margin would an enforcement action cost us?
The value of these questions sits less in the answers themselves than in whether the answer names a specific gap or claims comprehensive coverage. Confidence without specificity is the more dangerous answer, not the more reassuring one.
The function is already moving this direction
This isn’t a provocative reframe of what the sustainability function should become. It’s already happening, whether organizations have planned for it or not. The Weinreb Group’s 2025 survey of 215 chief sustainability officers, the largest sample in the study’s 14-year history, found nearly 90% spending more time on regulatory compliance than two years prior, with reporting lines drifting in a growing number of organizations from strategy toward general counsel. The role built to communicate sustainability externally is being pulled structurally toward the control environment that should have existed around it from the start.
None of this is an argument for lower ambition or less transparency. It is an argument for spending the controls budget like an auditor, not like a marketer. The budget is the same; the exposure is radically different. Greenwashing has been discussed as a communications failure and a credibility failure. It is both, but it is a financial controls failure first.
Sandhya Sabapathy is a former FTSE 100 sustainability director and founder of Kaleidoscope, an advisory practice. She is the author of “Burn Bright, Build Slow: How to Build, Teach and Lead Towards a Just Climate Future” and has spoken at the World Economic Forum, COP and SXSW. 
