Show Me The Money: Linking Environmental, Social and Governance Issues to Company Value, UNEP Finance Initiative: Asset Management Working Group

The report reviews analyst research of 22 global financial service firms and concludes that the mismanagement of environmental, social and governance issues can present a financial threat to company and investor value. The report argues that analysts are increasingly documenting and quantifying potential material impacts of ESG issues on profitability and equity pricing. The report highlights three key findings: 1) ESG issues are material as there is robust evidence that ESG issues affect shareholder value in both the short and long term 2) the impact of ESG issues on share price can be valued and quantified and 3) key material ESG issues are becoming apparent, and the importance can vary between sectors.

The report is a good piece of advocacy that promotes the adoption of ESG metrics in evaluating a company’s long-term performance. The report’s review of selected industries and identification of specific ESG metrics provides a useful response to skeptics who insist that ESG factors are neither quantifiable nor relevant in evaluating a company’s share value and performance. The list of valuation tools is also useful and includes benchmarking, scenario analysis, proprietary valuation methodologies and case studies.

What makes the advocacy of this report compelling is the fact that there are many well-known and influential financial services firms who support the conclusions reached in the report. This private global financial services perspective is a welcome addition to the reports and advocacy of governmental, quasi-governmental and non-governmental organizations who have already been advocating for better metrics for evaluating the role of the corporate performance in a broader social context.

There is, however, a noted absence of large US financial services firms who contributed to this report and who are members of the Asset Management Working Group. This absence is suggestive of an important obstacle to the advocacy and conclusions reached in the report: the fact that the skeptics are numerous and more influential than the advocates of ESG portfolio management. It does not take a detailed study to conclude that the views of the skeptics are much more institutionalised in the global financial services industry than advocates of ESG reporting and management. Many more examples and much more evidence will need to be presented before the case for using ESG metrics in evaluating company value becomes widely accepted. This and other reports produced in the UNEP-FI Materiality series are nevertheless critical tools for providing compelling data for the skeptics who need to be convinced of the materiality of ESG data.