Innovation and Environmental, Social, and Governance Initiatives in Enterprise Management: A Machine Learning Analysis

This paper examines an intersection between innovation and environmental, social, and governance (ESG) initiatives in enterprise management just before and after a time of market meltdown and resurgence from 2019 to 2022. Specifically, we focus on how ESG activities reveal patterns of innovation that can assist companies in excelling. ESG scores reflect how a company operates—in other words, principles and practices that a company has in place—while various impact measures reflect the outcomes of these operational initiatives or practices. A Refinitiv ESG dataset for global firms in 2019 and 2022 was obtained through the Wharton Research Data Services (WRDS) database. The data were classified at the industry level to take into account variations in industrial growth, leadership and innovation trends and because companies typically compete within their industry group. The ESG indexes from the Refinitiv WRDS database enabled the comparison of multiple industries on various ESG-related aspects before and after the COVID-19 pandemic. Additionally, we use machine learning models and predictive analytics to identify patterns and relationships within the ESG data that can provide companies within industries with a competitive edge. We find that a large majority of industries substantially improved the governance pillar of their ESGs, while at the same time most industries fell in the environmental and social scores. Machine learning models identify groupings of industries expressing varying patterns of rises and falls across the three pillars of ESGs, with the dominant pattern being the corporate governance score increase accompanied by the environmental and social scores decline. We explore the implications of these data analytics groups for a better understanding of industry-level reactions to the COVID-19 global pandemic alongside the emergence of future trends of differential importance assigned to the different pillars of ESG in different industries.