businessman working with laptop and cell phone

Firms have increased their ESG-related messaging on social media in recent years, but they are selective in what they share and their online messages don’t always translate into tangible actions, a Queen’s University study has found.

Researchers studied ESG-related disclosures on X (previously Twitter), how those messages were perceived by investors and how they impacted the firms’ cost of equity. The findings were reported in a white paper published by the Institute for Sustainable Finance in December.

“Our analysis suggests that firms’ comments on social media resemble window dressing more so than genuine ESG commitments, which can lead investors to disregard these messages as simply white noise,” Dhruv Baswal and Sean Clearly at the Smith School of Business at Queen’s University wrote in the paper.

Selective messaging

The researchers analyzed tweets between 2015 and 2022 by Canadian firms that had a Twitter account and were in the S&P/TSX Composite Index as of June 15, 2022. Based on keyword searches, they identified 10,816 ESG tweets and 4,012 environmental tweets.

Firms were selective in their ESG-related messaging during the sample period and the messages skewed positive, the research showed.

Using VADER — a lexicon and rule-based sentiment analysis tool — to categorize tweets into positive, neutral and negative sentiments, the researchers found that nearly 80% of ESG tweets were mostly positive. By comparison, ESG news articles about these firms from dataset provider RavenPack were more balanced, with roughly 60% of articles found to be positive and 40% deemed negative.

Greenwashing

Many of these messages did not translate into enhanced actions to reduce greenhouse gas (GHG) emissions, the study found.

The researchers calculated the ratio of environmental-related tweets to total tweets each year and examined the subsequent year’s GHG emissions, using aggregate scope 1 and scope 2 GHG emissions as a measure of a firm’s output each year.

“We find no significant association between firms’ environmental messaging on Twitter and their subsequent change in future GHG emissions,” they wrote.

“So, despite the observed uptick in environmental messaging on Twitter, this increase hasn’t resulted in a significant decline in GHG emissions.”

Researches also found no correlation between cost of equity — the return investors expect from a company’s stock — and the volume of ESG tweets, regardless of how either were measured.

Cost of equity was measured using Bloomberg data, along with “the inclusion of controls for industry and year, as well as other traditional controls such as ESG score, firm size, asset tangibility, capital expenditures and income margin.”

And ESG tweets were found to receive less engagement from investors, suggesting “that there may be a lack of understanding, skepticism, or other factors hindering the effectiveness of ESG communication,” the study said.