The Relevance of Environmental, Social, and Governance Issues in Corporate Valuation: Concepts and Reflections

Murad Harasheh and Giovanni Cardillo

Chapter 9 in Green Finance and Sustainable Development Goals, 2024, pp 243-266 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, we present the theoretical value relevance of sustainability and ESG performance from a finance and investment point of view. The central concept is to figure out how ESG performance could be used as value-relevant information for financial markets, and through what channels ESG could create value for companies and financial market investors. We also show the interaction between the real economy and financial markets through a preferences shift. We discuss the idiosyncratic and systematic channels through which the ESG effect could be transmitted to value. Furthermore, we show the ESG cash flow drivers that potentially impact value and the systematic risk drivers through financial markets that affect the cost of capital and value. Finally, we establish a framework for discounted cash flow, incorporating the real and financial sides of the economy, influencing the potential value effects from ESG.

Keywords: Green Finance; Financial Development; ESG Performance; Climate Change; Climate-Vulnerable Asian Countries; Environmental Disclosure in Financial Institutions; Environmental; Social; and Governance Issues in Corporate Valuation; Financing Renewable Energy; Gross Ecosystem Product; Green Banking Disclosures; Climate-Related Risks; Green Banking Disclosures; Development and Impact Analysis (search for similar items in EconPapers)
JEL-codes: Q01 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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