ESG and Corporate Valuation. How can ESG and CSR factors be captured in the process of valuing companies? / Thomas KOEHL / 2021

Titre : ESG and Corporate Valuation. How can ESG and CSR factors be captured in the process of valuing companies? Type de document : Mémoire Auteurs : Thomas KOEHL, Auteur Année de publication : 2021 Importance : 34 p. Note générale : Pour accéder aux fichiers PDF, merci de vous identifier sur le catalogue avec votre compte Office 365 via le bouton CONNEXION en haut de page. Langues : Anglais (eng) Mots-clés : Management CAPITALISATION BOURSIERE ; ENVIRONNEMENT SOCIAL ; FINANCE D'ENTREPRISE ; GOUVERNANCE DE L'ENTREPRISE Résumé : With the growing attention given to Environmental, Social and Governance (ESG) issues in our world, corporations have always more pressure to comply with these matters. As Corporate Social Responsibility (CSR) and ESG factors have become essential for firms, the financial industry had to adapt to this new trend. ESG scores and rankings, Socially Responsible Investment (SRI) and ESG portfolios have been developed over the last years. However, this might not be enough to meet the challenge financial analysts are facing. Indeed, their job being based on fundamental analysis and valuation, it is a really complex task for them to include these non-financial items into their valuation. The purpose of this seminar paper is therefore to find some suggestions on the way ESG and CSR factors could be captured in the process of valuing companies. After interviewing two equity research analysts and analyzing a few reports, it came out that one of the keys is to be able to link ESG factors to tangible economic items. Most of the suggestions we got concern adjustments to the two main inputs of the Discounted Cash Flow (DCF) model: the cost of capital and the forecasted cash flows. We found that the first category of adjustments is closely related to risks through the beta of the Capital Asset Pricing Model (CAPM) that can be increased or decreased for instance due to governance practices or ESG-related regulations. Expected cash flows might on the other hand rather be adjusted due to ESG-related issues impacting income statement, balance sheet and cash flow items such as the revenue growth rate, the amount of CAPEX etc. However, these adjustments are as for now mainly done implicitly by financial analysts and is mostly based on an overall analysis of the company leading to a perceived level of risk and the identification of material ESG elements. So far, this topic remains in his early stage with currently suggestions rather than clearly established answers and methodologies. However, we still found that with the recent increase of interest in this subject, there might be some sort of clear path that emerges in this domain. Programme : MSc Corporate Finance Permalink : https://cataloguelibrary.neoma-bs.fr/index.php?lvl=notice_display&id=538596