Practical Applications of Analysis of Sustainability Reports for Top 20 Companies in the S&P 500 Index

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In Analysis of Sustainability Reports for Top 20 Companies in the S&P 500 Index, published in the Spring 2022 issue of The Journal of Impact and ESG Investing, authors Asli Ascioglu, Juan Gonzalez, and Leila Zbib of Bryant University discuss the growing importance of environmental, social, and governance (ESG) reports to the socially responsible investor. They note that while companies are quick to release reports affirming their commitment to ethical and sustainable business practices, the documents have wildly inconsistent formats and content. To demonstrate, the authors analyze ESG reports from the top 20 companies in the S&P 500 Index—and from an additional 10 companies for robustness—and compare their word, number, and page counts, and their use of numbers. They then apply Benford’s law to the various datasets in the reports, to assess their accuracy and detect discrepancies. They conclude that the reports differ to a large extent, that these differences cannot be explained by variances in market capitalization or other factors, and that inconsistent reporting makes objective judgment of the reports impossible. In addition, the figures in the reports do not conform to Benford’s law, indicating that they likely are rounded. The authors close by calling for standardized, mandatory, and audited ESG reporting by US companies, which would produce valuable data for sustainable investors.