Most firms can’t forecast impacts of ESG

BVWireIssue #242-2
November 9, 2022

valuation methods & approaches
cost of capital, income approach, risk analysis, cash flow, discounted cash flow (DCF)

A new global survey highlights the difficulty in quantifying the financial impacts of environmental, social, and governance (ESG) factors. Over half the firms surveyed (54%) say they are unable to estimate the financial impacts of any ESG factors in their forecasting. Of the rest, 42% say they could partially estimate the impacts and 4% said they could fully estimate it. At this point, most firms don’t believe ESG has a very material impact on firm value, but the reason for this could be the difficulty in quantifying it.

The International Valuation Standards Council (IVSC) conducted the ESG survey, and the majority of responses came from firms based in Europe (67%). Other responses came from firms located in Asia (17%), North America (11%), and Africa (6%). Respondents were a mix of small and medium-sized firms and multinational organizations. The full results are available if you click here.

Extra: A new research paper from the CFA Institute proposes a performance evaluation and attribution framework for ESG investment strategies.

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