Do firms walk the environmental talk? : evidence from conference call transcripts

Abstract

By utilizing Natural Language Processing (NLP) to analyze transcript records of both publicly accessible and invitation-only private conference calls by listed Chinese firms, this paper constructs novel measures of frequency and sentiment of corporate environmental discourse ("talk") to examine the relationship between environmental talks and corporate environmental compliance efforts ("walk"), as well as the capital market reactions to environmental talks. This research finds that environmental talks generally show positive tones in public and private conference calls, and the environmental topic was discussed more frequently and positively from 2012 to 2023. Frequency and sentiment in public environmental talks are consistently positively correlated with walks or actual environmental compliance efforts (measured by pollution outcomes, environmental penalties, supply chain penalties, and green patents), indicating firms with more extensive and more positive public environmental discourse show more accountability and take more concrete actions. However, environmental discussions and sentiments expressed in private calls, even though a bit more extensive and emotional, do not exhibit statistically significant predictive power for future environmental actions, suggesting a discrepancy between private discussions and real environmental efforts and raising questions about the authenticity of environmental claims and risks of greenwashing in private settings. The results also show that all the measures of environmental talks exert predictability of companies’ outperformance in the stock market, especially in the short term, suggesting the financial markets may reward firms that transparently and proactively provide environmental information. Conference calls are mostly live with unscripted interactions and may reveal participants’ real intentions and views more authentically than other corporate disclosures. The study measures the predictive power of environmental talks in conference calls regarding actual follow-up actions and market reactions, offering new insights into the credibility and impact of corporate environmental disclosure. The findings have significant practical implications for investors, corporate managers, and policymakers. • Investors should encourage listed firms’ consistent environmental messaging across public and private settings while being mindful of potential greenwashing risks. Investors should engage with corporate management teams to encourage them to speak publicly and loudly about their environmental commitments, which can positively influence corporate behavior, attract other investors’ support, and ultimately make investments more sustainable. The predictability of stock performance based on environmental discourse offers a novel metric for investors to assess a firm’s value. • Corporate management teams can leverage these insights to align their environmental communications more closely with their actual environmental actions, enhancing corporate credibility and reputation. • Policymakers might consider these findings when designing regulations to encourage transparent and accountable environmental reporting.