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Not only has COVID-19 exposed the fragility of our global economic and social systems while the global climate crisis escalates, but it has also accelerated existing trends in various areas in an unexpected and, in many cases, constructive way. An illustration of this is the remarkable increase in awareness of ESG (environmental, social, and governance) in recent months in the public forum, private sector, and finance.

A new peak has been reached through a combination of progressive change in consumer behavior towards sustainable products and services, investor demand for financial assets with positive ESG factors, and actions by governments to support sustainable businesses and finance, in particular in light of pandemic-related stimulus programs. These factors positively reinforce each other to create exponential growth in momentum.

While the introduction of ESG to portfolio and investment decision-making has been accelerating, the challenge of how to properly reflect ESG in financial valuations remains a largely unexplored area in academia and practice. This edition of our newsletter suggests an approach to viewing business valuations through an ESG lens.

We undoubtedly recognize that ESG-related questions do not solely address the long-term value creation for companies’ shareholders but rather the holistic value impact beyond the bounds of financial considerations, for all stakeholders, i.e. the global society. However, in the pages that follow, we focus on business value as a core decision indicator for management.

Gradually ESG is becoming an overriding factor for driving and impacting corporate structures, business strategies, and investment decisions. In many countries, companies have started reporting sustainability and establishing ESG programs to gauge themselves and convey a strong message to their stakeholders including the society at large.

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