"How Top Energy Companies Are Crafting Their Sustainability Narrative: A Look Inside The Narrative Observatory"

The Narrative Observatory: How Positive Sustainability news affects top Energy companies

In this illustrative example, we offer a tangible demonstration of the capabilities of our "Narrative Observatory" service.

We focus on the eight premier global energy corporations evaluated based on their market capitalization:

• Chevron (NYSE: CVX),

• Exxon (NYSE: XOM),

• Shell (NYSE: RDS.A),

• BP (NYSE: BP),

• Total Energies (NYSE: TTE),

• Saudi Arabian Oil Company (Tadawul: 2222),

• PetroChina Company Limited (NYSE: PTR),

• ConocoPhillips (NYSE: COP).

The objective is to ascertain whether positive sustainability narratives have a tangible impact on the market valuations of these major energy entities, reflecting investor response. Examining keywords such as "carbon capture", "energy transition", "climate action", and "sustainability", we explore the nuanced interplay between thematic news narratives and market dynamics impacting these corporations' valuations.

Analysis Details:

As Nobel laureate Robert Shiller [1] highlighted, narratives possess a remarkable ability to sway investor sentiment and trigger market movements. Our analysis aligns with this understanding, examining how sustainability news impacts the stock trends of these energy giants.

Methodology:

• We meticulously collected and analysed a vast array of news narratives encompassing sustainability keywords.

• We analysed the tone of the news thorough 51 data dictionaries, including the following popular dictionaries, highlighted in the literature: “Harvard IV-4 Psychosocial Dictionary” [2], the “WordNet-Affect dictionary” [3,4] and the “Loughran and McDonald Sentiment Word Lists dictionary” [5,6].

• Our robust scientific methodology identified the most influential narratives, unveiling the stories that wield considerable power in shaping market sentiment.

• Historical stock market data of the analysed companies was thoroughly gathered.

• Utilising advanced correlation methodologies such as Pearson's correlation coefficient and Granger causality tests, we have identified the intricate relationship between these narratives and stock market fluctuations.

• In examining sentiment, we acknowledged the negativity bias that can influence investor behaviour, leading to amplified reactions to adverse news, as documented by Tetlock (2014) [7].

Key Graphs:

1. Market Impact Visualized: The initial graph elegantly maps out the swift reactions within the market triggered by specific sustainability narratives. These graphical representations empower businesses to swiftly comprehend the cause-and-effect relationship between news and market shifts.

2. Sentiment Analysis Revealed: The second graph provides a visual depiction of the sentiment underlying sustainability narratives. This nuanced emotional understanding is a cornerstone for businesses aiming to align their strategies with prevailing public perceptions.

3. Correlation and Predictive Projection: The third graph sheds light on the temporal correlation between sustainability narratives and market movements over a span of 20 days. This unique vantage point offers clients the ability to gauge the enduring impact of specific narratives, effectively guiding strategic decisions.

Results:

Correlations news and stock market

In the initial graph, we present a quantitative analysis illustrating the response of stock prices of the eight leading energy corporations worldwide, as determined by market capitalization, to positive sustainability-centric news.

The evident correlation manifests as the stock trajectories of these entities exhibit a synchronized pattern in reaction to the analyzed news.

The graphical representation employs two distinct lines to delineate the daily averages: the blue line denotes the average tone of the analyzed sustainability-related news on a given day, while the orange line signifies the average closing stock price on the same day for the scrutinized corporations.

Through this comparative visual analysis, the correlation between positive sustainability narratives and the market valuation of these top-tier energy corporations becomes discernible, showcasing a statistically significant relationship underscored by the concurrent movement of the two plotted lines.

The second graph shows the distribution of news tone regarding our chosen sustainability-focused keywords. It's apparent from the data that a significant portion of the analyzed news articles possess a positive tone, with only a small fraction displaying a tone below zero. Notably, the distribution's center is positioned at 1.5 instead of 0, indicating a predominant positive sentiment.

This graphical analysis underscores the generally favourable media coverage of energy corporations' sustainability initiatives. It substantiates the advantageous scenario for these corporations when they engage in and publicize sustainable practices, a notion further corroborated by the positive correlation with stock market performance illustrated in the first graph.

Additionally, this analysis hints at the potential business rationale behind greenwashing, highlighting the market and media-driven incentives that might encourage superficial or misleading sustainability claims. The depicted tone distribution and its correlation with market responses provide a compelling narrative concerning the interplay between corporate sustainability endeavours, media portrayal, and market valuations.

In our third graph, utilizing Pearson's correlation coefficient and Granger causality tests, we elucidate the intricate relationship between sustainability narratives and stock market fluctuations of the analyzed energy corporations. The analysis unveils that the scrutinized sustainability news can impact the stock market performance of these corporations for a duration of 20 days, as evidenced through the temporal correlation observed between sustainability narratives and market movements over this span.

The observed predictive capacity emanating from sustainability narratives can serve as a valuable asset for corporations in managing their portfolios or adapting their strategic responses post the dissemination of relevant news. This quantitative examination provides a profound understanding of the influence of sustainability-centric media narratives on market dynamics, offering actionable insights for the scrutinized corporations in navigating the intertwined landscape of media narratives, sustainability endeavours, and market performance.

Conclusions

This analysis succinctly demonstrates the potent impact of narratives on the market valuations of global energy corporations, resonating with the empirical findings by Shiller and Tetlock. Our "Narrative Observatory" service emerges as a game-changing asset for corporations.

By meticulously analyzing the interplay between sustainability narratives and market valuations, it empowers corporations with actionable insights to not only anticipate market reactions but also strategically manage their public communications and sustainability endeavours.

This nuanced understanding of media narratives' impact paves the way for more informed decision-making, enabling corporations to adeptly navigate the complex nexus of sustainability discourse, public perception, and market performance.

Through leveraging the predictive analytics offered by the Narrative Observatory, corporations can proactively manage their portfolios and tailor their strategies to optimize both sustainability objectives and market valuation. This service, therefore, stands as a pivotal tool for corporations aiming to thrive in a market landscape increasingly influenced by sustainability narratives.

References:

1. Shiller, R. J. Narrative economics: How stories go viral and drive major economic events. Princeton University Press, 2020.

2. Stone, P.J.; Dunphy, D.C.; Smith, M.S. The General Inquirer: A Computer Approach to Content Analysis; MIT Press: Cambridge, MA, USA, 1966.

3. Strapparava, C.; Valitutti, A. WordNet-Affect: An affective extension of WordNet. In Proceedings of the 4th International Conference on Language Resources and Evaluation (LREC 2004), Lisbon, Portugal, 27 May 2004; pp. 1083–1086.

4. Valitutti, A.; Strapparava, C.; Stock, O. Developing affective lexical resources. Psych. Nology J. 2004, 2, 61–83.

5. Loughran, T.; McDonald, B. When is a liability not a liability? Textual analysis, dictionaries and 10-ks. J. Financ. 2011, 66, 35–65.

6. Loughran, T.; McDonald, B. Textual analysis in accounting and finance: A survey. J. Account. Res. 2016, 54, 1187–1230.

7. Tetlock, P. C. Giving content to investor sentiment: The role of media in the stock market. The Journal of finance, 2007, 62.3: 1139-1168.