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Title: Talking about ESG matters Authors:  Alejandro Rodriguez Gallego - Comillas Pontifical University (Spain) [presenting]
Isabel Catalina Figuerola-Ferretti Garrigues - Comillas Pontifical University (Spain)
Sara Lumbreras Sancho - Comillas Pontifical University (Spain)
Abstract: Sustainability has gained great traction among investors, however, there is no consensus in the literature about its actual impact on financial performance. The lack of quality data on ESG has hindered most attempts to tackle the issue quantitatively. The application of Natural Language Processing on a corpus of audited annual reports is proposed as a way to obtaining time series which are long and objective enough for empirical methods. Taking a sample of more than 3,100 companies, high versus low portfolios are built based on the new scores for Environment, Social and Governance and new Fama-French factors are derived from them. The results show that talking about Social and Governance has a moderating effect over volatility while increasing risk-adjusted return. Conversely, the effect reverses for Environment. Finally, the loading coefficients estimated with panel data suggest that industries interpret sustainability discourse differently.