Empirically assessing corporate adaptation and resilience disclosure using AI

The paper builds on established sustainability disclosure frameworks to develop an A&R disclosure framework that the authors combine with the latest advances in large language models (LLM) to assess the sustainability reports of S&P 500 companies. The development of a common framework is expected to enhance companies’ A&R reporting while making public information more comparable and usable for investors and regulators.

Key points of this paper include:

• The study provides the first empirical analysis of the extent to which company disclosures include information on A&R.
• The authors develop a framework of 91 binary indicators and use it to assess the latest sustainability reports of the S&P 500 companies using an LLM to generate 42,030 datapoints for analysis.
• By using the disclosures of S&P 500 companies, the paper provides a snapshot of the disclosures of firms with a combined valuation of US$43 trillion regarding their adaptation to climate change and resilience building.
• On average, S&P 500 companies report against just 20% of the 91 indicators in the framework, with the least-reporting company only providing information for one of the 91 indicators and the most-reporting company providing information for 50 indicators.
• The most disclosed indicators include areas such as board oversight, social and environmental safeguards, and engagement with value chains. The least disclosed indicators relate to companies’ metrics and targets, nature-related financial risks, capital expenditure linked to adaptation or natural capital, and the precise mechanics of their risk assessments.
• Overall, corporate A&R disclosure is found to be deficient, particularly around risks, metrics and targets, underlining the need to consider other data sources when assessing firm-level risks and contributions to societal A&R goals. The methodology developed can be applied to other forms of corporate disclosure (e.g. US filings or other financial reporting), which may be deemed more trustworthy than companies’ sustainability reports.