Application of text mining to the analysis of climate-related disclosures

Abstract

In this article we apply text-mining techniques to analyse the TCFD recommendations on climate-related disclosures of the 12 significant Spanish financial institutions and of the companies comprising the IBEX11The IBEX 35 is a Spanish stock index that measures the behavior of the 35 most negotiated companies within the four Spanish stock exchanges (Madrid, Barcelona, Bilbao and Valencia). The study includes the 35 companies except one (ArcelorMittal), which did not have enough reports available for the period of analysis. 35 stock market index using publicly available corporate reports from 2014 until 2020.In our analysis, applying our domain knowledge, first we create a taxonomy of concepts present in disclosures associated with each of the four areas described in the TCFD recommendations. This taxonomy is then linked together by a set of rules in query form of selected concepts. The queries are crafted so that they identify the excerpts most likely to relate to each of the TCFD's 11 recommended disclosures. By applying these rules we estimate a TCFD compliance index for each of the four main areas for the period 2014–2020 using corporate reports in Spanish. We also describe some challenges in analysing climate-related disclosures. The index gives an overview of the evolution of the level of climate-related financial disclosures present in the corporate reports of the Spanish banking sector compared to the sectors represented in the IBEX 35 index. The results indicate that the quantity of climate-related disclosures reported is growing each year. Besides, our study also suggests that some disclosures are only present in reports different than annual and ESG reports, such as Pillar 3 reports in the case of the banking sector or reports on remuneration of directors in the case of publicly traded companies.