Sustainable fingerprint – Using textual analysis to detect how listed EU firms report about ESG topics

Transparent reporting of corporate activities and their impact on ESG topics are becoming increasingly important for companies and stakeholders. Beginning from fiscal year 2017 onward, the European Union (EU) mandates large listed EU firms with the Directive 2014/95/EU (hereafter, NFRD) to prepare annual non-financial reports. By using a text mining approach and creating both ESG and time reference dictionaries, we investigate how precisely ESG topics are disclosed in sustainability reports. We examine the occurrence of ESG topics and the time reference in non-financial reports of the most relevant stock indices from France, Germany, Italy and Sweden from 2017 to 2021. Generally, our results show a tendency towards an expanding volume per report across all countries and over the years. Applying bag-of-words, a contextual as well as a temporal dimension are assigned to each section resulting in a 4 × 4 matrix. Based on the findings a unique Sustainable Fingerprint can be allocated to each report. We document a strong tendency towards future-oriented reporting. Simultaneously, the ESG aspects are relatively balanced. The analysis at cross-country and sector level reveals noticeable results. Depending on the country and sector, characteristic tendencies towards certain ESG-aspects can be observed. Both the country- and the sector-specific analysis indicate potential for improvement of ESG reporting.