Nicolas, Maxime LD;
Desroziers, Adrien;
Caccioli, Fabio;
Aste, Tomaso;
(2024)
ESG reputation risk matters: An event study based on social media data.
Finance Research Letters
, 59
, Article 104712. 10.1016/j.frl.2023.104712.
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Abstract
We investigate the response of shareholders to Environmental, Social, and Governance-related reputational risk (ESG-risk), focusing exclusively on the impact of social media. Using a dataset of 114 million tweets about firms listed on the S&P100 index between 2016 and 2022, we extract conversations discussing ESG matters. In an event study design, we define events as unusual spikes in message posting activity linked to ESG-risk, and we then examine the corresponding changes in the returns of related assets. By focusing on social media, we gain insight into public opinion and investor sentiment, an aspect not captured through ESG controversies news alone. To the best of our knowledge, our approach is the first to distinctly separate the reputational impact on social media from the physical costs associated with negative ESG controversy news. Our results show that the occurrence of an ESG-risk event leads to a statistically significant average reduction of 0.29% in abnormal returns. Furthermore, our study suggests this effect is predominantly driven by Social and Governance categories, along with the “Environmental Opportunities” subcategory. Our research highlights the considerable impact of social media on financial markets, particularly in shaping shareholders’ perception of ESG reputation. We formulate several policy implications based on our findings.
| Type: | Article |
|---|---|
| Title: | ESG reputation risk matters: An event study based on social media data |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.frl.2023.104712 |
| Publisher version: | http://dx.doi.org/10.1016/j.frl.2023.104712 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | ESG, ESG-Risk, Lexicon, Dictionary, Social media, Event study |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10184974 |
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