Jasmine Wang and Julia Yu
ESG (environmental, social, and governance) reporting, the process by which companies disclose information about their operations and risks in those three areas, continues to grow with demand for it—so much so that data and business intelligence platform Statista concludes that the share of global exchanges that observed investor demand for ESG disclosure in their markets increased from 70% in 2018 to 96% in 2024.
Yet despite concerns about how business operations may impact the planet and communities, research by McIntire Professors Jasmine Wang and Julia Yu finds that companies’ ESG reporting may be saying a lot more—but actually offering a lot less meaning.
In their recent paper in the Journal of Accounting Research, “Global Evolution of Environmental and Social Disclosure in Annual Reports,” Wang, Yu, and their co-authors Yan Lin (University of Macau) and Rui Shen (The Chinese University of Hong Kong, Shenzhen) used machine learning techniques to analyze more than 210,000 annual reports from 24,271 public firms across 30 countries. Using a natural language processing technique called word embedding, they created an ESG dictionary to track the trends companies use to talk about their impact. Their work was as deep as was lengthy, spanning two decades, from 2001 to 2020.
The results?
Their research reflects a willingness to meet the demand of ESG reporting, but it also shows that the length of the E&S (environmental and social) disclosures that companies include in their annual reports has gotten a lot longer: more than six times longer since 2001. And yet, Wang, Yu, et al. discovered that the increase in words amounts to less actual data.
So while companies are saying more about their activities in ESG areas, they are often using generic phrases that offer little in the way of details; over the course of years studied through the machine language analyzation, that type of corporate boilerplate verbiage has tripled.
“Specificity is important because it indicates how much a company is willing to share about its actual practices and impacts,” Wang and Yu write. “Specific disclosures provide concrete data—think ‘Our carbon emissions reduced by 5% this year’ rather than ‘We are committed to reducing our environmental footprint.’ Unfortunately, our study found that the proportion of specific information in E&S disclosures has slightly dropped over the years, suggesting that while companies are saying more, they’re not necessarily saying more that’s meaningful.”
Additionally, they found that voluntary disclosures generated higher-quality, more specific reporting versus mandatory reports that may have been created reluctantly, in haste, or both, leading to bland generalizations that offer little in the way of an organization’s impact and activities.
Their research also revealed trends about ESG topics: A focus on product quality and customer service in the first half of the years examined gave way in the last decade to an increase in workforce diversity, employee well-being, and climate change. Globally, a growing awareness and regulatory pressure have led to more—and longer—reporting.
Wang and Yu summarize the issue thusly: “As regulators and standard-setters continue to push for greater ESG disclosure, it’s crucial to focus not just on the quantity of information, but on its quality.”
