Are investors liking corporate Canada's ESG tweets?: White Paper

New research published by the Institute for Sustainable Finance finds that there is a mismatch between Canadian companies’ positive Environmental, Social and Governance (ESG) messaging on social media, their actual environmental performance, and their cost of capital.

The study is summarized in an ISF white paper by Dhruv Baswal, a PhD candidate at Smith School of Business Queen’s University, and his supervisor Dr. Sean Cleary, a professor of finance at Smith, titled “Are investors liking corporate Canada’s ESG tweets? An analysis of Environmental, Social and Governance messaging on social media and cost of capital.”

Download the white paper here.

“Our findings indicate that despite firms increasing their ESG communication on social media, it garners limited engagement from social media users compared to other topics,” said Dhruv Baswal. “Companies might want to rethink their approach to these communications channels.”

“The results confirm that words alone are not enough to impact capital providers, unless supported by actions,” said Sean Cleary.

This study analyzes tweets between 2015 and 2022 by the Canadian firms that were in the S&P/TSX Composite Index as of June 15, 2022.

Summary of key findings:

• Social media communications by companies have grown substantially in recent years, as has ESG-related messaging by firms. While just under 2% of total tweets were ESG-related in 2016, the numbers exceeded 8% by 2022.
• The most active companies posting about ESG matters also tend to be the heaviest greenhouse gas (GHG) emitters. Energy, Industrials, Materials and Utilities represent the most significant proportion of environmental tweets, while those same companies account for over 95 percent of industrial GHG emissions of the companies studied.
• Those companies that are posting about ESG matters aren’t seeing the cheaper credit and better stock performance often associated with a strong commitment to ESG. 
• The study finds no significant association between firms’ environmental messaging on social media and subsequent changes in GHG emissions.

The authors conclude that while many investors see social media as a relevant information channel, investors may be tuning out corporate Canada’s ESG social media communications as mere noise, given the observed selectivity of disclosures and lack of follow-through.