Towards Empowering Consumers through Sentence-level Readability Scoring in German ESG Reports

Environmental, Social, and Governance (ESG) reports are central to investment decision-making, yet their length, heterogeneous content, and lack of standardized structure make manual analysis costly and inconsistent. We present ESGLens, a proof-of-concept framework combining retrieval-augmented generation (RAG) with prompt-engineered extraction to automate three tasks: (1)~structured information extraction guided by Global Reporting Initiative (GRI) standards, (2)interactive question-answering with source traceability, and (3)ESG score prediction via regression on LLM-generated embeddings. ESGLens is purpose-built for the domain: a report-processing module segments heterogeneous PDF content into typed chunks (text, tables, charts); a GRI-guided extraction module retrieves and synthesizes information aligned with specific standards; and a scoring module embeds extracted summaries and feeds them to a regression model trained against London Stock Exchange Group (LSEG) reference scores. We evaluate the framework on approximately 300 reports from companies in the QQQ, S&P500, and Russell1000 indices (fiscal year 2022). Among three embedding methods (ChatGPT, BERT, RoBERTa) and two regressors (Neural Network, LightGBM), ChatGPT embeddings with a Neural Network achieve a Pearson correlation of 0.48 ($R^{2} \approx 0.23$) against LSEG ground-truth scores -- a modest but statistically meaningful signal given the ${\sim}300$-report training set and restriction to the environmental pillar. A traceability audit shows that 8 of 10 extracted claims verify against the source document, with two failures attributable to few-shot example leakage. We discuss limitations including dataset size and restriction to environmental indicators, and release the code to support reproducibility.

As corporate responsibility increasingly incorporates environmental, social, and governance (ESG) criteria, ESG reporting is becoming a legal requirement in many regions and a key channel for documenting sustainability practices and assessing firms' long-term and ethical performance. However, the length and complexity of ESG disclosures make them difficult to interpret and automate the analysis reliably. To support scalable and trustworthy analysis, this paper introduces ESG-Bench, a benchmark dataset for ESG report understanding and hallucination mitigation in large language models (LLMs). ESG-Bench contains human-annotated question-answer (QA) pairs grounded in real-world ESG report contexts, with fine-grained labels indicating whether model outputs are factually supported or hallucinated. Framing ESG report analysis as a QA task with verifiability constraints enables systematic evaluation of LLMs' ability to extract and reason over ESG content and provides a new use case: mitigating hallucinations in socially sensitive, compliance-critical settings. We design task-specific Chain-of-Thought (CoT) prompting strategies and fine-tune multiple state-of-the-art LLMs on ESG-Bench using CoT-annotated rationales. Our experiments show that these CoT-based methods substantially outperform standard prompting and direct fine-tuning in reducing hallucinations, and that the gains transfer to existing QA benchmarks beyond the ESG domain.

Environmental, Social, and Governance (ESG) reporting is critical for corporate accountability, with Large Language Models (LLMs) and Retrieval-Augmented Generation (RAG) offering strong potential to automate KPI extraction. However, open-source LLM performance in domain-specific ESG tasks remains insufficiently understood. This paper evaluates open-source LLMs in ESG contexts using a structured framework and evaluation resource based on 498 real-world ESG reports from EU-listed companies (2010-2024). We evaluate seven open-source models (2B to 30B parameters) -- glm-4.7-flash, nemotron-3-nano:4b, qwen3:4b-instruct, gemma3:4b, gemma4:e4b, gemma4:e2b, and ministral-3:8b -- using 100 persona-based synthetic QA pairs covering ESG information needs. System performance is assessed via RAGAS metrics, including contextual recall, precision, relevance, faithfulness, answer relevancy, and factual correctness. Results show notable performance variations across architectures. Retrieval performance is strong across models (context recall around 0.58-0.61, context precision around 0.78-0.81, context relevance 0.965-0.985). Generation diverges most on faithfulness (0.607-0.822) and least on answer relevancy (0.760-0.881): glm-4.7-flash leads in faithfulness (0.822), qwen3 in factual correctness (0.449), and ministral-3 in answer relevancy (0.881). Low overall factual correctness (0.387-0.449) highlights the need for domain-specific fine-tuning. This work provides data-driven guidance for deploying open-source models in ESG reporting.