Using AI to Assess the Decision-Usefulness of Corporates' Nature-related Disclosures

Chiara Colesanti Senni, Saeid Vaghefi, Tobias Schimanski, Tushar Manekar and Markus Leippold
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Chiara Colesanti Senni: University of Zurich - Department of Finance
Saeid Vaghefi: University of Zurich
Tobias Schimanski: University of Zurich
Tushar Manekar: Zurich University
Markus Leippold: University of Zurich; Swiss Finance Institute

No 24-90, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Nature-related disclosures by companies are insufficient. As long as they remain voluntary, this situation is unlikely to improve, even under well-intentioned initiatives like the Task Force on Nature-related Financial Disclosures (TNFD). These conclusions are based on our investigation into the decision-usefulness of such disclosures through the development of ASKNATURE 1 , an AI-powered tool that analyzes company reports to assess their environmental impact. Our conversational AI prototype can answer challenging questions in two settings: (1) recommendations and guidelines from organizations such as the Task Force on Nature-related Financial Disclosures (TNFD) and (2) user-specific inquiries for Corporate Sustainability Reports (CSR). As an illustration, we apply ASKNATURE to the CSRs of the Nature Action 100 (NA100) companies. Based on the answers provided by our tool and in line with the double materiality paradigm, we classify companies' activities based on their impact direction: company-to-nature (C2N), nature-tocompany (N2C), or neutral. Despite the unprecedented loss of biodiversity and significant depletion of natural capital, our sentiment analysis reveals that corporate disclosures predominantly report positive C2N impact. Moreover, there is minimal overlap between the countries mentioned in the reports and regions of environmental significance, which raises concerns about transparency. Consequently, we find that current CSR disclosures, although aligned with the TNFD, are not sufficiently decision-useful for stakeholders and lack legal enforceability.

Pages: 24 pages
Date: 2024-07
New Economics Papers: this item is included in nep-big, nep-env and nep-mac
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