Machine Readable Filings (MRF) Extract the Significance of ESG in Future Earnings

August 4, 2020

Discussions of Environmental, Social and Governance (ESG) has grown exponentially in the last few years. Socially conscious investors believe ESG criteria better determine the future financial performance of companies. There is a growing number of ESG funds, ETFs and other products based on ESG. To determine whether the increase in ESG discussions have influenced company operations, SMA analyzed the breadth ESG mentions in SEC Filings using ‘Machine Readable Filings’ (MRF).

Social Market Analytics, Inc. (SMA) has partnered with S&P Global Market Intelligence on ‘Machine Readable Filings’ (MRF). MRF is the first product to provide parsed textual data of SEC Edgar Regulatory Filings at the Item, Section, Sub-section, and Notes level with historical baselines back to 2006. Extraneous information such as page numbers, images, and tables are removed.  SMA is currently developing the same structured data on International Reports which will be released in Q4 2020.

SEC filings are formal documents reported to the U.S. Securities and Exchange Commission (SEC) that contain important information about Companies, such as Management Discussion & Analysis and Risk Factors. Every U.S. publicly traded company is required to submit regulatory filings.

SMA’s proprietary Topic Modeling allows us to analyze mentions of ESG within MRF, while filtering out the unfitting noise. The ESG Topic Models captures every mention of “ESG” within SEC filings, including related terms using statistical synonym capabilities while filtering out mentions of “ESG” where it does not apply to Environmental, Social and Governance. For example, mentions of an internal group called Energy Services Group abbreviated as “ESG” in Halliburton Company’s regulatory filings would not be included in the ESG Topic Model. The ESG Topic Model flags the filings matching the topic model criteria since 2006 and extracts the textual context of the mention of the ‘ESG”-related phrase to analyze who is talking about ESG and how they are talking about it.

The first step in analyzing the dataset was to see the trend since 2006. In order to see the growth in conversation of ESG, we charted the total number of unique documents each year, based on the year the document is published. The chart demonstrates exponential growth since 2006. The least number of documents published in a year that mention ESG was in 2006 with 12 documents and the most is in 2020 with 481 documents as of July 23. The total amount of documents mentioning ESG since 2006 is 1,502.

When companies mention ESG in their filings, the mentions tend to be in 10-Ks where companies typically go into the most detail. Of the 1,502 documents that mention ESG, 683 documents were 10-Ks or 10-K/A and 291 were 10-Qs or 10-Q/As. There are about 3x as many 10-Qs total than 10-Ks because of how often they are reported each year. 2020 is by far the largest year, and more companies will mention ESG in 10-Q filings reported over the next two quarters. Occasionally 8-K filings will mention ESG when there is a new ESG initiative or update.

In order to validate that few companies are not releasing many filings mentioning ESG, we calculated the number of unique companies mention ESG each year. The number of unique companies each year shows parallel exponential growth to total documents. ESG initiatives are spreading across many companies.  There are a total of 597 different companies reporting filings that mention ESG since 2006.  This validates that the documents with mentions of ESG are not dominated by few companies. It also makes sense there is not bias towards one company because most of the documents mentioning ESG come from 10-K filings which companies only release once a year.

We then wanted to look at when companies mention ESG for the first time. Almost half (279/597) of the companies in our dataset were flagged by the topic model for the first time in 2020. Between 2006 and 2018, new companies mentioning ESG for the first time in their filings was between 10 and 36. In 2019, the amount of new companies mentioning ESG in their filings jumped to 290, almost tripling the highest year before. In 2020, that number more than tripled again. Still only 579 companies have mentioned ESG to date which is about 15% of publicly traded U.S. companies.

Since few companies are mentioning ESG in their filings, we then looked at the data by sector to see if there is a trend. The three largest sectors mentioning ESG are Financials, Energy and Industrials. The Financials industry primarily talks about products offered or investments in companies that are thought to value ESG more. Energy and Industrials could be companies that are required to practice environmentally friendly procedures within their business model. The two smallest sectors are Communication Services and Consumer Staples. The two sectors are not as impacted by economic cycles, therefore could be more resistant to economic trends.

After looking at the share of companies mentioning ESG by sector, we decided to see if there was a trend over time. The Financials sector has been the clear leader in having the most companies mention ESG in filings for the last 5 years. However, the second leading sector, Energy, had not been nearly as high until 2020. Before 2020, the Energy sector had an average of less than 2 companies per year mentioning ESG in their filings and had only the 7th most companies mentioning ESG in 2019, which indicates there may have been an increase in public or investor pressure to mention ESG in their filings. Prior to the surge in the Energy sector mentioning, the Industrials and Real Estate sectors had been going back and forth for the last couple years for the second and third most companies that mention ESG in their filings. The growth rate was much less spontaneous than the Energy sector.

ESG is a growing topic for both Companies and Investors and has been increasing exponentially within SEC filings. The number of companies mentioning ESG in their filings has been growing dramatically over the past four years. We expect this trend to continue as investors become more socially conscious in their investing. Companies tend to discuss ESG in their most detailed documents, either 10-Ks or 10-Qs. The sectors mentioning ESG the most are Financials, Energy, Industrials and Real Estate. The greatest recent surge in companies has come from the Energy sector. Utilizing MRF and the Topic Models built to analyze the dataset, Firms can get a better picture of which companies are truly ESG conscious.

As the breadth of companies widens and the depth of ESG mentions increase in Filings, we believe ESG will drive investor returns. We believe MRF will become an important tool for Asset Managers to evaluate ESG as part of their investment strategy. In future blogs we will explore the relative return of companies with and without ESG principles.

For more information about Social Market Analytics By David Stolz

At Social Market Analytics we use proprietary techniques to return the most accurate Twitter volume for topics of interest.  First, we use a topic model not just $Ticker.  Most vendors use the CashTag concept to identify securities.  At SMA we believe only using CashTag excludes a lot of valuable conversation.  We return higher volume and cleaner conversations because we use a machine learning rules based system to return all conversations about a security that are not tagged with $Ticker.  In the diagram below we return about 500 extra Tweets a day for Tesla Motors versus just $TSLA.  Our topic model evolves with the conversation over time.

After applying our topic model filter we additionally filter Tweets based on our proprietary account validation metrics.  Only Tweets from our SMA approved accounts are included.  In the below example, there are about 500 Tweets for Tesla Motors from the certified accounts per day.   These accounts pass our multi-step algorithm.  One metric we use is weighted accuracy over time.  For example, when a Twitter account is bullish on a security what percentage of time does that security subsequently move higher.

Below is a visualization of SMA Twitter filtering process for the Tesla topic.

Below is a time series of Tesla Topic model versus $TSLA with the additional filter for SMA certified accounts.

As you can see from the charts SMA’s proprietary technology provides the truest view of the each securities topic model.  To learn more about our technology or receive a sample data set


Social media beats the mainstream media on a regular basis.  Last week social media beat the news wire in reporting the MSFT acquisition of LNKD (blog post below) and Tuesday Twitter broke SCTY being acquired by TSLA.  This information is not theoretical – it is actionable data in our feed!

Tesla Motors lit up Twitter, yesterday, when CEO, Elon Musk came out and said their cars can float on water.  Tuesday June 21, the electric car manufacturer took everyone by surprise when they announced their decision to buy the solar panel company SolarCity (SCTY) minutes after the markets closed. The first news article to mention this came out at 4:18 PM CDT. Twitter had already gotten wind of this development 8 minutes prior with a tweet from the account “TopstepTrader”.


The tweet from “TopstepTrader” was deemed to be credible by Social Market Analytics’ sophisticated algorithm, which separates signal from noise to create actionable intelligence. The sentiment started to move in a positive direction the very next minute. By 16:12 CDT, SMA’s subscribers received ‘S-DeltaTM’ alerts on SCTY. The PredictiveSignalTM from SMA became positive at 16:13 CDT and at 16:18, when the first news article came out, the sentiment had already reached an extremely positive level, with Tweet volume soaring high; as was the stock price. Traders who incorporated social media sentiment from SMA into their trading models were ahead of the curve, making profits as the rest of the market was just learning of the news.


The S-Delta metric also flagged this move.  The below chart illustrates the delta values for SCTY.  Delta represents the change in S-Score over a 15 minute lookback.  Delta values of 2 or higher are huge outliers. An SMA alarm based on Delta or S-Score would have provided an alert to this breaking news.


To find out how you can use SMA S-Factors in your investment process contact us at