Evaluating the performance of state-of-the-art esg domain-specific pre-trained large language models in text classification against existing models and traditional machine learning techniques

Abstract

This research investigates the classification of Environmental, Social, and Governance (ESG) information within textual disclosures. The aim is to develop and evaluate binary classification models capable of accurately identifying and categorizing E, S and G-related content respectively. The motivation for this research stems from the growing importance of ESG considerations in investment decisions and corporate accountability. Accurate and efficient classification of ESG information is crucial for stakeholders to understand the impact of companies on sustainability and to make informed decisions. The research uses a quantitative approach involving data collection, data preprocessing, and the development of ESG-focused Large Language Models (LLMs) and traditional machine learning (Support Vector Machines, XGBoost) classifiers. Performance evaluation guides iterative refinement until satisfactory metrics are achieved. The research compares traditional machine learning techniques (Support Vector Machines, XGBoost), state-of-the-art language model (FinBERT-ESG) and fine-tuned LLMs like Llama 2, by employing standard Natural Language Processing performance metrics such as accuracy, precision, recall, F1-score. A novel fine-tuning method, Qlora, is applied to LLMs, resulting in significant performance improvements across all ESG domains. The research also develops domain-specific fine-tuned models, such as EnvLlama 2-Qlora, SocLlama 2-Qlora, and GovLlama 2-Qlora, which demonstrate impressive results in ESG text classification.