How the implementation of ESG strategies benefits the value of a company?

How does the implementation of ESG Strategies benefit the value of a company?

In today’s world, ESG strategies are in the limelight of any business meeting or discussions. I think it’s important to consider that, in order to properly measure the impact of ESG strategies we need, first of all, to identify those assets or those activities in which ESG will take place. Additionally, we need to monitor, control, assess and measure the real economic impact of those strategies.

It’s not an easy task, due to the fact that, in reality, benefits are very often attached to the entire corporate. It’s not easy to identify a specific business line, a specific area or product in which we could measure the impact.

The second thing is that all the profits are coming in the medium term or long-term. That means they are not short-term oriented, while investments are.

Finally, it’s important to say that ESG is aimed at reducing risk. And in order to reduce the risk, it is very different to have incremental cash-flow values, which are commonly those that valuers will take into account.

What role does the IVSC play in the valuation of companies?

Under this scenario, the IVSC (International Valuation Standards Committee) is giving a framework for valuers in order to help us in that task. That framework is split into two main parts.

The first one is referred to those ways or manners of creating value. There are basically three: direct creation of value; indirect creation of value; and the scalability of the creation of value throughout time. The second part is much more focused on four key areas in which we could try to measure the increase in value:

1. The brand
2. The human capital
3. Value of the franchise (or goodwill)
4. Technology.

All of these are interacting among them throughout all the process.

As a conclusion, I’d like to highlight that adopting ESG strategies is a must if we want to keep the liquidity of the company and the assets in the years to come. For those companies that do not adopt ESG strategies are running the risk of having no market in the medium term.