Sentiment Analysis of ESG disclosures on Stock Market Sudeep R. Bapat1 Saumya Kothari1and Rushil Bansal1 1Indian Institute of Management Indore India

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Sentiment Analysis of ESG disclosures on Stock Market

Sudeep R. Bapat1,∗, Saumya Kothari1and Rushil Bansal1

1Indian Institute of Management Indore, India

∗Email: sudeepb@iimidr.ac.in

Abstract

In this paper, we look at the impact of Environment, Social and Governance related news articles

and social media data on the stock market performance. We pick four stocks of companies

which are widely known in their domain to understand the complete eﬀect of ESG as the newly

opted investment style remains restricted to only the stocks with widespread information. We

summarize live data of both twitter tweets and newspaper articles and create a sentiment index

using a dictionary technique based on online information for the month of July, 2022. We look

at the stock price data for all the four companies and calculate the percentage change in each

of them. We also compare the overall sentiment of the company to its percentage change over

a speciﬁc historical period.

Keywords: ESG, Sentiment Analysis, Composite Score, Tesla, HSBC Bank, Amazon, Goldman

Sachs, Twitter

1 Introduction

Impact Investing as an investment strategy has grown tremendously over the past decade, and

since then, both the investors as well as signiﬁcant organizations have focused on the Environment,

Social, and Governance aspects of their activities. In this investment style, investors focus on the

positive impact created by their investments and the company’s commitment to serving society

as a whole, starting from their employees, environment, and ethical practices. The rise of impact

investing diversiﬁed a company’s focus from just their shareholders to the modern standard of

corporate responsibility as well.

In the stock market, a company’s share price is said to depend on many factors, one of which is

Company Related News. This factor has a wide range of sources, such as newspaper articles, press

releases, social media updates like Twitter tweets, etc. We have observed that the eﬀect of the news

on such forums has a signiﬁcant impact on the stock market. Hence, with the advent of impact

investing, the focus on such forums has increased as all company activities are critically analyzed

and presented to the public with a focus on ESG considerations. This has led to the emergence

of various scoring and rating solutions by statistical organizations that have subsequently caused

investors to analyze and assess the ESG performance of various companies and integrate the same

into their stock market portfolio. However, such parameters for scoring and rating suﬀer from

some limitations. The primary limitation is that these scores are based on the company’s voluntary

disclosures of ESG or CSR activities. This leads to a bias in the market as a company tries to

conceal information that has a negative connotation. Secondly, the analysis of such activities is

done on a qualitative basis which relies on the judgment and opinions of the analyst. Therefore,

the reliability of these scores is aﬀected by such limitations and thereby missing the ESG market

timeline relevant to the price change.

Hence, we aim to overcome these challenges and present a relationship between ESG Related

Disclosures and the real-time stock prices of the company. To facilitate this, we aim to provide

real-time Twitter data focusing on the tag “ESG Investing.” Even though the credibility and

robustness of Twitter data is established, we reiterate four primary advantages of our Twitter

arXiv:2210.00731v1 [q-fin.CP] 3 Oct 2022

dataset: First, a fat API pipeline receives real-time tweets from Twitter, making our information

source timely. Tweets are forward-looking because they capture expectation formation and hence

help us overcome the challenge of time lag. Third, unlike rankings computed on arbitrary guidelines

and/or companies’ own reports, Twitter is an open speech forum in that it provides everyone who

feels entitled a voice on a topic of interest can present their analysis. Fourth, from an investment

perspective, most ESG disputes and severe ESG events, such as corporate frauds, have originated

from a whistleblower inside or outside the organization. Nowadays, ESG issues are voiced and

ﬂagged on social media, especially Twitter, which has become the global ”virtual speaker’s corner.”

Hence, Twitter detects anomalies or disruptions in a real-time format. In addition, we have taken

newspaper articles as the other sources to diversify the forums and integrate an oﬃcial source in

the study, which also considers the press releases and company updates.

Hence, with the help of the dataset of tweets and news, we aim to calculate the sentiment of

each single data point. Subsequently, we will analyze the stock trends of speciﬁc companies and

form a correlation between the sentiment of the dataset with the price changes we observe in the

stock.

2 Further Relevant Literature

Firms’ performance in the area of Environmental, Social, and Governance (ESG) issues appear to

be particularly actively scrutinized by their investors and the public, as seen by the establishment

of sustainable investment funds or demand for “green ﬁnance” (Gilbert, 2019). The amount and

quality of data available to explore whether and how investors respond to information about a

company’s ESG performance has also evolved. As the empirical evidence to answer this question is

still scarce and contradictory in the academic literature, this paper seeks to ﬁll this research gap by

extracting ESG information from publicly available news articles (Twitter and newspaper article

sources) and investigating its relationship with the stock market performance of four companies’

stocks namely, Amazon, Tesla, HSBC Bank and Goldman Sachs.

We are basing our research on the work of various authors, all of whom have disputed hypotheses,

conclusions, and opinions on the subject. According to (Friedman, 2007), a ﬁrm’s only social

responsibility is to generate lawful proﬁts. This viewpoint would imply that any ESG activity

that is not part of a company’s core business should not be undertaken by the company and that

investors should not incorporate ESG-related information into their investment decisions other

than by withdrawing capital from companies that engage in such activities. (Brammer et al,

2006) present supporting evidence for this eﬀect of ESG activities, ﬁnding that organizations with

greater social performance scores had lower returns than those with lower social performance scores.

Similarly, (Kr¨uger, 2015) and (Capelle-Blancard and Petit, 2019) ﬁnd that positive ESG-related

information can hurt a ﬁrm’s market value in the near run. (Cheong et al, 2017) discover that most

organizations have a reactionary attitude toward ESG matters, which provides greater insight into

the likely mechanism behind such observations. These corporations participate in ESG activities

excessively only after experiencing poor market and investor sentiment in the preceding year, where

market and investor sentiment is recorded by a modiﬁed version of Baker and Wurgler’s index (Baker

and Wurgler, 2006). While this conclusion would simply have ramiﬁcations for how altruistic

a company’s motivations behind its ESG initiatives are on its own, (Goss and Roberts, 2011)

demonstrate the potential consequences of such behavior. The authors suggest that corporations’

ESG operations, which are launched in direct response to negative media and investor sentiment,

are frequently regarded as window-dressing, lowering the company’s perceived creditworthiness and

increasing its cost of ﬁnancing.

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SentimentAnalysisofESGdisclosuresonStockMarketSudeepR.Bapat1;,SaumyaKothari1andRushilBansal11IndianInstituteofManagementIndore,IndiaEmail:sudeepb@iimidr.ac.inAbstractInthispaper,welookattheimpactofEnvironment,SocialandGovernancerelatednewsarticlesandsocialmediadataonthestockmarketperformance.Wepic...

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Sentiment Analysis of ESG disclosures on Stock Market Sudeep R. Bapat1 Saumya Kothari1and Rushil Bansal1 1Indian Institute of Management Indore India

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