Paying Attention to ESG: Evidence from Big Data Analytics

Environment, social and governance (ESG) issues are increasingly important to investors and ESG data have become the backbone of responsible investing. Yet, ESG ratings feature data quality issues with considerable dispersion among data providers. We propose a new measure based on attention to ESG issues using novel data of a firm’s internet search intensity around ESG-related topics. We find large increases in a firm’s attention to ESG-related topics predicts improvements in that firm’s ESG ratings (Thomson Reuters’ Refinitiv, MSCI’s KLD, and RepRisk), Increased investor attention to ESG predicts changes in institutional investment positions, particularly sell-offs in stocks with poor ESG ratings. Studying the joint dynamics in attention to ESG among firms and their institutional investors offers some evidence that investors communicate with, possibly even influence, a firm’s ESG action