Investor Responses to ESG News Sentiment: Exploring Differential Effects and Industry Moderation

ABSTRACT Environmental, social, and governance (ESG) principles have gained prominence in the capital markets. While ESG ratings are widely used to assess corporate sustainability, their disagreement and time lag limit their effectiveness for investors. This study proposes ESG news sentiment as an alternative measure of corporate ESG activities and investigates the investor responses to it. Using sustainability reports, we developed lexicons to classify news into ESG and non‐ESG categories and further categorized ESG news into environmental, social, and governance dimensions. Through hierarchical regression analysis, we examine the impact of media‐derived ESG factors on market value and stock returns. Our findings reveal that ESG news sentiment is more positively associated with firm performance compared to non‐ESG news. This is particularly evident for social and governance dimensions, with effects varying across industries depending on their ESG concerns. These results demonstrate the value of ESG news sentiment analysis in understanding market responses to corporate sustainability practices.