The study, conducted using Matter’s AI tool SDG Signals, examines the impact of sustainability-related media coverage on the market values of companies. The AI solution is trained on a substantial dataset of over 100,000 sentences, and assesses sustainability sentiment related to more than 50,000 listed companies, categorising it according to the UN Sustainable Development Goals (SDGs).
The research analysed over 12,000 events from 2018 to 2023, focusing on 600 listed companies in Europe. The research outlined three key findings. First, it was revealed that negative ESG news significantly decreases a company’s market value for up to 21 days, especially for issues related to the environment, peace, and prosperity.
In contrast, positive news does not have a mirrored effect. Second, companies with higher ESG ratings experience more significant value declines following negative news, suggesting a market bias towards sustainability expectations.
Lastly, the study notes that these market reactions are more pronounced in Europe, indicating regional differences in ESG awareness and emphasis.
The study highlights trends and inconsistencies in investor expectations and reactions, suggesting a focus on risk avoidance over positive sustainability opportunities. These insights can be relevant for ESG analysts and portfolio managers, offering a way to anticipate and navigate stock price fluctuations.
Emil Fuglsang, COO and co-founder of Denmark-based Matter, commented on the study’s implications, noting that the research illustrates the role of AI in enhancing understanding of sustainable finance and identifying areas for investor performance.
“This research shows how AI, via solutions such as SDG Signals, can add valuable insights to our understanding of sustainable finance, in terms of identifying new areas of potential outperformance for investors. But it also points to areas which require greater attention if the capital markets are to effectively incentivize sustainable behaviour in corporates.”
The study highlights the increasing relevance of AI tools in sustainable investment strategies and the need for capital markets to encourage sustainable corporate behavior.
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