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Bridging the gap in ESG measurement: Using NLP to quantify environmental, social, and governance communication

Author

Listed:
  • Schimanski, Tobias
  • Reding, Andrin
  • Reding, Nico
  • Bingler, Julia
  • Kraus, Mathias
  • Leippold, Markus

Abstract

Environmental, social, and governance (ESG) criteria take a central role in fostering sustainable development in economies. This paper introduces a class of novel Natural Language Processing (NLP) models to assess corporate disclosures in the ESG subdomains. Using over 13.8 million texts from reports and news, specific E, S, and G models were pretrained. Additionally, three 2k datasets were developed to classify ESG-related texts. The models effectively explain variations in ESG ratings, showcasing a robust method for enhancing transparency and accuracy in evaluating corporate sustainability. This approach addresses the gap in precise, transparent ESG measurement, advancing sustainable development in economies.

Suggested Citation

  • Schimanski, Tobias & Reding, Andrin & Reding, Nico & Bingler, Julia & Kraus, Mathias & Leippold, Markus, 2024. "Bridging the gap in ESG measurement: Using NLP to quantify environmental, social, and governance communication," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000096
    DOI: 10.1016/j.frl.2024.104979
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    References listed on IDEAS

    as
    1. Bingler, Julia Anna & Kraus, Mathias & Leippold, Markus & Webersinke, Nicolas, 2022. "Cheap talk and cherry-picking: What ClimateBert has to say on corporate climate risk disclosures," Finance Research Letters, Elsevier, vol. 47(PB).
    2. Florian Berg & Julian F Kölbel & Roberto Rigobon, 2022. "Aggregate Confusion: The Divergence of ESG Ratings [Corporate social responsibility and firm risk: theory and empirical evidence]," Review of Finance, European Finance Association, vol. 26(6), pages 1315-1344.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    ESG analysis in financial markets; Natural language processing; BERT model;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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