Actions Speak Louder Than Words: A Linguistic Analysis of Corporate Environmental Sustainability Disclosures

Abstract

This study evaluates the extent to which firms acknowledge climate change and communicate credible climate change mitigation and adaptation strategies in their environmental sustainability reports. We assess the credibility of firms' strategies by retrieving domain knowledge using Linked Data from the Web. Specifically, we query an online government database and retrieve earth scientists' recommendations on climate change. Using these recommendations, we employ a probabilistic topic model to create a taxonomy of climate change terms. We then evaluate the extent to which firms discuss these recommendations in their environmental sustainability communications. Our findings suggest that the probability that a firm reduces its direct greenhouse gas emissions is positively related to whether its strategy is aligned with earth scientists' recommendations. Our approach is intended to highlight the merits of integrating earth science domain knowledge into a corporate disclosure analysis, and may be of interest to regulators seeking to detect corporate 'greenwashing.'