Attention or Sentiment: How Social Media React to ESG?

Despite the increasing attention associated with ESG investing, a natural yet overlooked question is how investors would react to the ESG performance of firms, given that investors’ activities can ultimately impact firm performance. Utilizing data from multiple sources, we empirically find that ESG performance positively predicts future social media attention, but it has no predictive ability for future social media sentiment. Furthermore, the significant positive association between ESG and social media attention holds for both ESG downgrade events and ESG upgrade events. Moreover, the positive association between ESG and social media attention is driven by the environmental and social factors, whereas the uncorrelation between ESG and social media sentiment is determined by the social and governance factors. These findings urge managers to pay close attention to keeping and improving their firms’ ESG advantage. They help managers shed light on the picture of the return of their firms’ investment in ESG by taking investor behavior into account. Besides, ESG’s inability in predicting social media sentiment also indicates retail investors’ limited awareness of the importance of ESG currently. Therefore, it is pressing for regulators to take actions to boost the function of sustainable investing and ESG values.