Introduction

The study examines 130 years of public discourse on corporate responsibility, focusing on environmental and social (E&S) issues. Using natural language processing (NLP) techniques, the authors construct the Environmental and Social Index (ESIX), a monthly time-series based on historical news articles. The index captures evolving societal concerns and provides a long-term lens to study the financial and real impacts of corporate responsibility.

Corporate responsibility throughout U.S. history

Corporate responsibility debates have been present since the late 19th century. Early discourse included Andrew Carnegie’s Gospel of Wealth (1889) and the Berle-Dodd debate of 1931 on corporate purpose. Milton Friedman’s 1970 assertion that the social responsibility of business is to increase profits shaped late 20th century thinking. In 2004, the UN’s “Who Cares Wins” report introduced the ESG acronym, linking financial value with sustainability. Historical concerns have reflected broader social and economic events, such as the Great Depression, civil rights movements, environmental pollution, and pandemics.

Data and methodology

The analysis is based on 4 million business-related articles from The Wall Street Journal and The New York Times spanning 1890–2023. Articles were processed to exclude non-content words and ensure relevance. Word2Vec models were trained for each decade, using universal seed words (“pollution”, “inequality”, “discrimination”) to generate context-specific dictionaries. ESIX was constructed as the monthly share of E&S keywords in articles, with sub-indices EIX (environmental) and SIX (social).

Result

Properties of ESIX

The index shows several waves of high public concern. Social issues dominated early 20th century discourse, particularly during recessions, unemployment spikes, and inequality. Environmental concerns rose from the 1960s, spiking after the creation of the U.S. Environmental Protection Agency in 1970 and during events such as the Kyoto Protocol (1997), Paris Agreement (2015), and COP26 (2021). From 1990 onwards, both E&S issues steadily gained prominence. The mean ESIX value is 0.05, with sub-index averages of 0.02 (EIX) and 0.03 (SIX).

ESIX and macroeconomic conditions

SIX is positively correlated with economic instability, including unemployment, recessions, and wealth inequality, whereas EIX is more prominent during stable, prosperous periods. EIX is positively associated with political polarisation and climate policy uncertainty. Geopolitical risk affects ESIX only during major wars.

ESIX exposure and stock returns

Firms’ ESIX exposures were derived from five-year rolling regressions of stock returns against ESIX innovations. Industries with negative exposures varied historically: textiles and steel in the early 20th century (linked to labour disputes), and fossil fuels and polluting sectors in later decades. Across the 1931–2023 sample, positive ESIX exposure does not generate higher future returns. Stocks with positive exposures often underperform, particularly when ESIX levels are low. A long-short strategy based on ESIX exposures failed to deliver consistent positive returns.

ESIX and corporate investments

Higher ESIX levels are associated with lower capital expenditure in the following year, primarily driven by EIX. Public environmental concerns are linked with reduced investment efficiency, weakening the relationship between investment and Tobin’s q. Panel VAR analysis shows short-term declines in investment of around 0.4% of assets within two years of ESIX shocks. However, investments recover over 5–7 years and improve in efficiency after 10 years, particularly among high-q firms. Since 2004, the long-run positive effects of ESIX have become more pronounced, suggesting society’s ESG demands are increasingly aligned with value creation. Pollutive industries face more persistent negative effects compared to diversified sectors.

Conclusion

ESIX provides a historically grounded measure of public attention to corporate responsibility. Findings indicate that social concerns rise in times of instability, while environmental issues attract focus during prosperity. Positive ESIX shocks suppress investment activity in the short term but enhance both the level and efficiency of investments over longer horizons. Financial markets appear unable to fully price these long-term implications.