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Topic Taxonomy Construction from ESG Reports

The surge in Environmental, Societal, and Governance (ESG) reports, essential for corporate transparency and modern investments, presents a challenge for investors due to their varying lengths and sheer volume. We present a novel methodology, called MultiTaxoGen, for creating topic taxonomies designed specifically for analysing the ESG reports. Topic taxonomies serve to illustrate topics covered in a corpus of ESG reports while also highlighting the hierarchical relationships between them. Unfortunately, current state-of-the-art approaches for constructing topic taxonomies are designed for more general datasets, resulting in ambiguous topics and the omission of many latent topics presented in ESG-focused corpora. This makes them unsuitable for the specificity required by investors. Our method instead adapts topic modelling techniques by employing them recursively on each topic’s local neighbourhood, the subcorpus of documents assigned to that topic. This iterative approach allows us to identify the children topics and offers a better understanding of topic hierarchies in a fine-grained paradigm. Our findings reveal that our method captures more latent topics in our ESG report corpus than the leading method and provides more coherent topics with comparable relational accuracy.