Decoding Sustainability Reporting: Insights from Text Mining and Classification Models for SDGs

Objective: This study aims to investigate the signaling effects of Sustainability Reporting (SR) in listed Singapore firms, particularly in demonstrating firm capitalization and sustainability performance. The research focuses on identifying distinct SR signals using advanced text mining and classification techniques, and their alignment with the United Nations' Sustainable Development Goals (SDGs). Theoretical Framework: The study is grounded in signaling theory, which posits that firms communicate observable characteristics (SR content) to signal unobservable attributes (firm capabilities and sustainability performance). By applying this framework, we analyze how SR may act as a signaling mechanism for large-cap firms and sustainability leaders. Method: This research collects 1,844 sustainability reports from listed Singapore firms between 2016 and 2022. Using a combination of Structural Topic Modeling (STM) and Random Forest (RF) classification models, we extracted and analyzed the key SR signals that differentiate firms by size and sustainability performance. Results: The results indicate that SR signals such as community engagement, climate risk, and compliance are effective in distinguishing between large firms and firms with strong sustainability performance. The Random Forest models achieved high accuracy in identifying these groups. Community engagement, compliance with the Global Reporting Initiative (GRI), and sustainable construction were among the most impactful topics, with large firms focusing more on scope and governance, while sustainability leaders emphasized environmental risks and compliance. Research Implications: The findings provide insights into the practical and theoretical implications of SR as a signaling tool. Key SR topics are identified as critical signals for firms with large capitalization and high sustainability performance, guiding firms in utilizing SR in the context of SDGs. Originality/Value: The findings show that SR topics such as community engagement, climate risk, and compliance serve as key signals for differentiating firms by size and sustainability performance. Firms can strategically emphasize these areas to enhance their SR practices while contributing to broader SDGs.The findings provide insights into the practical and theoretical implications of SR as a signaling tool. Key SR topics are identified as critical signals for firms with large capitalization and high sustainability performance, guiding firms in enhancing their SR strategies.