Are ESG Improvements Recognized? Perspectives from the Public Sentiments

While Environment, Social, and Governance (ESG) increasingly guides investment management and corporate agendas nowadays, public reactions to firms' ESG performance remain under-studied. This paper fills this gap by investigating whether the public picks up firms' ESG performance changes timely and, if not, how long it takes. I propose new proxies that quantitatively measure the public's attention and sentiments regarding companies' ESG performance changes. I construct a quarterly panel combining Environment, Society, and Governance metrics and public sentiments from S&P 500 companies on X (formerly Twitter) from 2010 to 2021. I find empirical evidence that public sentiments lag significantly by one to two quarters. Using a two-period theoretical model of an ESG-aware investor, I highlight biases retail investors should caution against and provide insights into how public perception influences portfolio management. I conclude by discussing the need to align public, investor, and policymaker perceptions with actual ESG performance, which can prompt timely recognition of firms' ESG improvements and motivate better long-term commitments.