Cheap talk can cloud insights on ‘green’ investments

The winning paper at the fifth annual sustainable investment research (GRASFI) conference examines the critical subject of companies’ climate disclosures – a vital prerequisite to managing climate-related financial risks. The authors report on the results of their fine-tuning and use of an established deep-learning approach to test the hypothesis that, too often, current climate disclosures are imprecise, inaccurate and prone to trust issues.[1] 

This article is part of our series on current academic research into a range of sustainable investment topics. The papers discussed were presented at the latest annual Global Research Alliance for Sustainable Investment and Finance conference. We believe in science-led sustainable investment. Partnering with academic researchers can add value since thorough research helps us to grasp the scope[1] of climate change and biodiversity loss, to quantify risk, and to develop fit-for-purpose solutions. This is why we sponsor GRASFI’s annual conference and share relevant scientific findings with investors, clients and the wider asset management industry on our websites.

The authors of the paper “Cheap talk in corporate climate commitments: the role of active institutional ownership, signalling, materiality, and sentiment”examined 14 584 annual reports of companies in the MSCI World index from 2010 to 2020.

They used a deep-learning approach employing a fine-tuned version of a well-established artificial intelligence textual analysis tool, ClimateBert, to do a deep dive into each report’s references to climate disclosure.

This enabled them to extract the amount of cheap talk – defined as the share of precise versus imprecise climate commitments – in each report. Vague, ‘imprecise’ – or outright false – climate claims can be interpreted as ‘greenwashing’.

The authors tested their findings by linking three different climate initiatives – Task Force on Climate-Related Financial Disclosure, Science-Based Targets Initiative and Climate Action 100+  – to the companies’ analysed levels of signalling, credibility and active engagement.

Climate initiatives and climate action 

In particular, the paper’s authors looked at whether these three climate initiatives reduce ‘cheap talk’ by disciplining companies in how they define and disclose actionable climate commitments in their annual reports.

They found that active institutional ownership and targeted engagement strategies, as well as climate risk exposed sectors and downside risk-focused disclosures, were associated with less ‘cheap talk’. In contrast, publicly voiced support for the Task Force on Climate-Related Financial Disclosures (TCFD[2]) was associated with more ‘cheap talk’.

Cheap talk and stewardship

At BNP Paribas Asset Management, we believe this important paper underscores the value of stewardship. Additionally, the paper’s findings regarding TCFD support are a useful signal for our future analysis and discussions with companies.

“We are not surprised by this study’s finding that ‘engagement initiatives by institutional investors such as Climate Action 100+ considerably increase the quality and decision-relevance of climate-related disclosures’. While voluntary commitments are important, we need continuous monitoring and engagement to ensure those commitments are backed by action. When disclosures are part of an ongoing dialogue, with careful readers actively challenging vague disclosures, those disclosures become more meaningful. Talk is cheap when there are no consequences and no demands to back up vague statements with clear indicators of progress. This rigorous analysis underscores the critical role investors are playing, turning words into action.”

Adam Kanzer, Head of Stewardship, Americas 



[1] Also read GRASFI – Bringing the academic rigour crucial to judging sustainable investments ( 


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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Termes et définitions
1. scope. Le terme “scope” fait référence à la catégorisation des émissions de gaz à effet de serre (GES) selon…
2. TCFD ( TCFD ) La TCFD – Task Force Climate-related Financial Disclosures a été créé en 2015 par le Conseil de stabilité…
3. ESG ( ESG ) L’ESG (Environnement, Social et Gouvernance) est un terme générique qui désigne les critères de responsabilité sociale et environnementale…
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