Despite the stock market’s ups and downs this year, ESG discussions among investors accelerated significantly in 2022, according to a recent Nasdaq study.
The research was conducted by Shea Drake and Michele Holtkamp, senior analysts at Nasdaq ESG Advisory. Using Nasdaq’s proprietary NLP (natural language processing), the authors analyzed over 3,000 earnings transcripts across companies from the Russell 3000 and MSCI USA ESG Leaders indexes. Artificial intelligence identified key conversation topics during Q1 earnings calls. In addition, it observed behavior based on the sector and size of the firms.
The results were more than encouraging. Within the Russell 3000 universe, 65 percent of the companies discussed ESG during their Q1 calls, an increase of 19 percent from the prior quarter.
Within the MSCI USA ESG Leaders index, 76 percent talked about ESG, up 15 percent from Q4 2021.
“Nasdaq’s NLP tools and expert analysis uncover how the market is thinking about and discussing ESG,” noted the authors of the report. “Through that lens, ESG is growing in importance on earnings calls.”
Further analyzing the data, the report found that climate transition was “THE” topic ESG leaders are discussing.
Forty-nine percent of companies in the MSCI index discussed climate transition, up from the 28 percent the prior quarter.
Other topics included sustainability, human capital management, supply chain management, and company culture, respectively, at 43 percent, 39 percent, 38 percent, and 36 percent.
While lower than MSCI’s, Russell’s index figures also showed significant progress, with those topics representing 24 percent, 19 percent, 25 percent, 23 percent, and 19 percent, respectively.
Another positive trend was that during the Q&A portion of earnings calls, almost half of all questions relating to ESG focused on climate transition. Analysts put questions to company management three to four times more frequently than any other subject.
When looking at sectors and companies of different sizes, supply chain questions and concerns were the dominant subjects. Fifty-one percent of industrials and 46 percent of consumer discretionary companies within MSCI covered supply chain issues. In addition, 40 percent of information technology names within both indexes addressed this topic.
“Despite the current macroeconomic environment, industrials and utilities are having the greatest number of conversations around clean energy, suggesting the energy transition is likely continuing its momentum,” stated the authors.
Within other industries, healthcare and industrials focused around 30 percent of the time on human capital topics. MSCI USA ESG Leaders in the consumer discretionary sector also discussed human capital management, sustainability, and company culture.
Perhaps not surprisingly, the report found that large and mega-cap companies were leading in the ESG sphere. However, the authors also noted that small and midcap names have also started to address ESG.
“Regardless of company size, having a statement prepared on the current state of ESG at your company is becoming an area of significance, and we expect these trends to persist over the coming months,” the report concluded.
