Textual analysis reveals ESG initiatives linked to idiosyncratic risk in China

Identifying determinants of idiosyncratic risk is critical for advancing corporate sustainability agendas aligned with the United Nations Sustainable Development Goals (SDGs). While previous studies have mostly focused on financial factors and third-party environmental, social, and governance (ESG) ratings, I investigate whether and how ESG initiatives embedded in report texts influence companies' future idiosyncratic risk through the lens of SDG implementation. Extracting five ESG initiative factors from Chinese listed firms' reports (2010–2017) via Lasso and principal component analysis, I analyze their collective and individual impacts on risk profiles (2018–2020). My findings reveal SDG-specific risk dynamics: Environmental Governance and Work Safety significantly reduce risk, while Corporate Governance and Employee Security paradoxically increase it. Resource Saving shows neutrality. This granular analysis demonstrates that SDG-aligned ESG disclosures improve risk prediction beyond traditional ratings, offering actionable insights for investors targeting sustainability transitions. Methodologically, I validate robustness through alternative measures and address endogeneity via propensity score matching and instrumental variables. The findings urge policymakers to refine ESG reporting frameworks to better align corporate risk management with SDG priorities.