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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.
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    Citations

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    Cited by:

    1. Oehler, Andreas & Neuss, Charlotte, 2025. "ESG disclosure vs. ESG ratings: Consistent information value?," International Review of Financial Analysis, Elsevier, vol. 107(C).
    2. Barbosa, Anrafel de Souza & Crispim, Maria Cristina & da Silva, Luiz Bueno & da Silva, Jonhatan Magno Norte & Barbosa, Aglaucibelly Maciel & Correia, Lucas Miguel Alencar de Morais & Morioka, Sandra N, 2025. "Empirical analysis of workers' perceptions of ESG impacts on corporate sustainability performance: A methodological innovation combining the PLS-SEM, PROMETHEE-ROC and FIMIX-PLS methods," Technological Forecasting and Social Change, Elsevier, vol. 215(C).
    3. Ferjančič, Urša & Ichev, Riste & Lončarski, Igor & Montariol, Syrielle & Pelicon, Andraž & Pollak, Senja & Sitar Šuštar, Katarina & Toman, Aleš & Valentinčič, Aljoša & Žnidaršič, Martin, 2024. "Textual analysis of corporate sustainability reporting and corporate ESG scores," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    4. Rega, Federico Giovanni & Russo, Simona & Salerno, Dario, 2025. "Disentangling the S and the G in the European banking industry: The role of climate risk and opportunity awareness," Research in International Business and Finance, Elsevier, vol. 77(PB).
    5. Tang, Pengcheng & Wang, Guolin & Wang, Jinwei & Tian, Hao, 2025. "Decoding carbon information disclosure with NLP techniques: Combating carbonwashing for energy and climate transition," Energy, Elsevier, vol. 335(C).
    6. Guerrero, Santiago & Viteri, Juan Pablo, 2025. "What are environmental, social, and governance scores measuring? The role of outcome and impact indicators in ESG scores," Finance Research Letters, Elsevier, vol. 72(C).
    7. Chieh-Jung Chan & Ping-Fang Yen & Hsin-Wen Wang & Yuan Chang, 2026. "ESG Performance and Bank Loan Interest Rates," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 16(1), pages 1-4.
    8. Ali, Hassnian & Zafar, Muhammad Bilal & Aysan, Ahmet Faruk, 2025. "Generative AI in finance: Replicability, methodological contingencies, and future research directions," Finance Research Letters, Elsevier, vol. 86(PF).

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    Keywords

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    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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