ABSTRACT
In the chatter of online communities and in the writings of investigative journalists, corporate controversies are revealed and discussed in real time. Many of these controversies involve violations of environmental, social and governance (ESG) standards. This paper studies the Refinitiv MarketPsych ESG Analytics, a dataset of ESG controversies extracted from real-time news articles and social media posts. Using monthly rotation models on the Russell 3000 constituents, our research demonstrates that companies associated with a higher level of controversial online chatter experience greater future volatility and stock price underperformance. After excluding companies that are the most involved in ESG controversies, and controlling for the industry, a long-only simulated portfolio achieved annualized risk-adjusted returns 46% higher than the benchmark in the period from 2006 to 2020.
Key words: ESG controversies, news analytics, social media, Russell 3000.
