Attention or Sentiment: How Social Media React to ESG?

The environmental, social, and corporate governance (ESG) practice has become very important in contemporary business, and it is believed to have a profound impact on firm value and the stakeholders. However, how investors on social media react to firms’ ESG performance is still not clear. Exploiting investor-generated content from a popular online investment community (Seeking Alpha) and ESG performance scores from a professional provider (Sustainalytics), we first run multiple regressions to find ESG’s ability to predict social media attention and its inability to predict social media sentiment. Then, we conduct a battery of robustness checks by shifting the prediction window, considering changes in ESG rating methodology, or using other data sources of ESG scores as instrumental variables to ensure the reliability of these findings. In addition, we conduct two event-study analyses on classifying ESG performance changes into upgrade events and downgrade events to further confirm our main findings. Moreover, our mechanism analysis reveals that the predictive power of ESG on social media attention is mainly driven by environmental and social factors, whereas its predictive inability for social media sentiment is attributable to social and governance factors. Our work makes contributions to both academic literature and managerial practice related to corporate social responsibility by identifying the nuanced relationship between ESG and retail investors’ reactions in the social media era.

History: Wonseok Oh, Senior Editor; Martin Bichler, Associate Editor.

Funding: This work was supported by the National Natural Science Foundation of China [Grants 72121001, 72571267, 72071038, and 7247030852] and the Research Grants Council, University Grants Committee [Grants GRF 14500521, 14504524, and 165052947].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.0251.