Strategic ESG Discussions in Earnings Calls: Measurement, Managerial Incentives, and Market Consequences

Abstract

This thesis explores three questions in separate chapters: 1) What’s the patterns and informativeness of ESG discussions in conference calls? 2) How do CEOs use strategic ESG discussions to address their career concerns? 3) How do analysts, as professional market participants, react to ESG discussion in earnings calls? The first chapter develops a systematic methodology to measure material and non-material ESG discussions in earnings calls. This four-step approach involves: (1) extracting ESG content using an established keyword dictionary, (2) categorizing sentences into 26 ESG metrics with ESG-BERT, (3) classifying topics as material or non-material based on SASB industry standards, and (4) quantifying discussion intensity through word counts. The empirical analysis reveals that material ESG discussions positively correlate with firm value, while non-material discussions inadvertently increase information asymmetry, underscoring the importance of SASB’s materiality standards. The second chapter investigates how CEOs’ career concerns influence strategic ESG discussions. Using a prediction model for CEO dismissal probabilities, the study identifies a positive association between heightened career concerns and increased ESG discussions, particularly on material topics. The findings demonstrate that CEOs strategically increase material ESG discussions without corresponding performance improvements, often employing complex language and positive tone. This suggests CEOs leverage ESG discussions to secure their positions by diverting attention from potential career-damaging factors to ESG commitments. The third chapter examines analysts’ responses to ESG discussions through forecast accuracy and dispersion metrics. Material ESG discussions significantly reduce forecast accuracy and increase dispersion, while non-material discussions primarily increase dispersion without affecting accuracy. The linguistic complexity of ESG content, especially non-material discussions, further reduces accuracy and increases dispersion. These findings indicate that despite their theoretical value-relevance, the strategic nature and complexity of ESG discussions create substantial processing challenges for analysts. Overall, this thesis provides valuable insights into how companies communicate ESG information, their underlying motivations, and market participants’ responses. The findings contribute to academic discourse while offering practical implications for improving ESG communication and analysis in financial markets.