As more companies turned to social media, engagement on ESG-related issues by firms also grew. While just under two per cent of total tweets by these firms were ESG-related in 2016, by 2022 that number exceeded eight per cent.

Interestingly, the companies that were most actively posting about their ESG commitments also tended to be the heaviest greenhouse gas (GHG) emitters.

For instance, those in the energy, industrials, materials and utilities sectors represented the most significant proportion of environmental tweets. These same companies accounted for over 95 per cent of industrial GHG emissions of the companies studied. This is unsurprising, given these firms are under higher scrutiny when it comes to environmental performance.

But was all the effort by these firms to promote their ESG image on social media resonating with investors? According to our research, the answer is no.

Corporate greenwashing

Our research uncovered a disconnect between corporate environmental messaging on social media and meaningful action taken by these companies.

When we looked at whether companies were taking meaningful actions regarding their environmental record by tracking GHG emissions reductions, we found no significant association between firms’ environmental messaging on social media and reductions in GHG emissions.

For many firms, their ESG-related posts seemed to be more about image management than signalling a real commitment on environmental issues.

This could signal that firms are engaging in greenwashing behaviour — a practice where companies project an eco-friendly image without actually making substantial efforts to improve their environmental impact.

Words must be backed by action

Additionally, our research suggests that ESG-related social media activity has limited impact on financial outcomes. We found that companies that posted about ESG matters were not reaping the financial rewards often associated with strong ESG performance. These firms did not see a lower cost of capital, cheaper credit, or better stock performance.

Our research also found that investors are becoming increasingly skeptical of corporate messaging that lacks substantive backing. While many investors see social media as a relevant information channel, some have been tuning out corporate ESG social media communications as mere noise, given the observed selectivity of disclosures and lack of follow-through.

ESG has had some bad press recently, but it’s not “the devil” — it’s merely a business strategy. However, our research shows that it can be “devilishly tricky” to convince investors about genuine ESG performance through social media alone.

It turns out that words are not enough to impact capital providers if they are not supported by actions.

Our research serves as a cautionary tale for firms relying on social media to bolster their ESG image. Without backing up their claims, companies risk losing credibility in an environment where authenticity and accountability are paramount.

Sean Cleary, BMO Professor of Finance, Queen's University, Ontario and Dhruv Baswal, PhD Candidate, Finance, Queen's University, Ontario

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Conversation is seeking new academic contributors. Researchers wishing to write articles should contact Mitchell Fox, Senior Communications Coordinator, Research Promotion and Strategic Initiatives, at Mitchell.Fox@queensu.ca