Sentiment analysis in sustainability accounting reporting: does the tone reveal future environmental performance

This paper investigates whether positive or negative tones in US public firms' sustainability reports are associated with their future environmental performance. Using three-stage least squares simultaneous equations (3SLS) model and a sample of resource extractive firms (mining, quarrying, oil and gas extraction) listed on the US stock exchanges that issue stand-alone sustainability reports between 2010 and 2018, we find a negative correlation between the tones in sustainability reports and future environmental performance. Our result suggests that firms with low environmental performance use more optimistic tones to impress stakeholders. In contrast, firms with good performance tend to be more risk-averse and pessimistic in sustainability reporting to mitigate litigation risks. Our study contributes to understanding what motivates firms to disclose sustainability activities.