The thin edge of the wedge
I have written before about the wedge in conviction about the importance of ESG to investment decisions. The closer you come to the sell side, the less analysts care about climate change and ESG considerations. So far, this impression has been chiefly based on anecdotal evidence, but Jesse Chan provides some numbers that are indeed alarming.
Chan trawls through 526,740 analyst reports on US companies issued by 2,627 analysts between 2009 and 2020. Note that this period coincides with the rise in ESG awareness and does not include the recent backlash against ESG, during which climate change-related discussions in analyst reports are likely to have declined again.
However, even during these days of growth in climate change-related discussions, only one in ten analysts included climate change-related topics in any of their analyses, and only one in a hundred reports did so, rising to 1.4% of reports in 2020. In all honesty, I find these numbers shockingly low.
A closer look reveals that analyst reports discussing climate change are concentrated in two sectors: utilities and electric and electronic equipment makers. Essentially, analysts include climate change-related discussions in industries where these issues are already most salient and directly affected by regulation.
Sectors with most frequent climate change-related discussions
Source: Chan (2025)
Similarly, climate regulation is one of the most frequently discussed topics in reports addressing climate change. However, I am relieved to see that business opportunities arising from climate change are discussed even more frequently.
Issues discussed in analyst reports
Source: Chan (2025)
But the overall picture remains dire. Sell-side analysts have never seemed to genuinely care about climate change-related issues and have consistently failed to incorporate these issues into their analysis. And now that there is a political backlash in the US, I think they have found a good excuse not to care at all anymore.
Hi Joachim - this is not to disagree with your thesis, but as a former sell-side analyst of 20 years in the business, it is also true that the sell-side can and do generally write about hot topics for the buy-side, and if the sell-side don’t write much about ESG in the absence of some blow-up at a stock, one reason could be that the buy-side just isn’t asking that much for any reason - maybe they prefer to do their own homework, or they rely on third-party ESG scores. The other consideration is that Governance issues can be highly sensitive for IR and management, and could result in loss of roadshows or loss of direct calls or de-prioritisation of callbacks for a sell-side analyst who writes something that offends IR or management. Some things are easier discussed orally only with the buy-side!
Thanks for this interesting research. I am particularly shocked at how low insurance is, I'd have thought they'd be at the forefront. Yes, the backlash against ESG is indeed incredible now the Neanderthals are in charge....