Do ESG Factors Influence Firm Valuation? Evidence from the Field

66 Pages Posted: 24 Feb 2023 Last revised: 31 Jul 2023

See all articles by Franck Bancel

Franck Bancel

ESCP Business School

Dejan Glavas

ESSCA school of management

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Date Written: February 20, 2023

Abstract

We surveyed more than 300 financial executives on best practices in integrating Environmental, Social, and Governance (ESG) factors into corporate valuation. Hypotheses drawn from previous ESG research were pre-registered prior to the survey, were tested on responses, and were validated further during follow-on interviews with a subset of valuation experts. Findings show external stakeholders, such as buy-side investors and investment advisors, play a crucial role in guiding the use of ESG in valuation. We confirm that the low quality of ESG ratings data remains a significant impediment to its integration into valuation processes. Additionally, the discount rate is the key parameter adjusted in best practices valuations based on discounted cash flow approaches. We conclude by interpreting our survey and interview results for current efforts by regulatory agencies to promulgate policy on climate-related and ESG reporting.

Keywords: ESG factors, Valuation, Investments, Survey methods

JEL Classification: G31,G32,Q54

Suggested Citation

Bancel, Franck and Glavas, Dejan and Karolyi, George Andrew, Do ESG Factors Influence Firm Valuation? Evidence from the Field (February 20, 2023). Available at SSRN: https://ssrn.com/abstract=4365196 or http://dx.doi.org/10.2139/ssrn.4365196

Franck Bancel

ESCP Business School ( email )

79 avenue de la République
75011
France

Dejan Glavas (Contact Author)

ESSCA school of management ( email )

1 avenue Lakanal
Angers, 49000
France

George Andrew Karolyi

Cornell University - SC Johnson College of Business ( email )

174A STATLER HALL
ITHACA, NY 14853
United States
6142820229 (Phone)

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

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