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The Sustainability Delta: Considering Sustainability Opportunities in Firm Valuation

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  • Rodrigo Zeidan
  • Heiko Spitzeck

Abstract

In this paper we present the Sustainability Delta model as an improvement over existing environmental, social and governance (ESG) methodologies used in firm valuation. Starting from the question of how banks should integrate sustainability criteria into their valuation methods, we find that ESG methodologies currently do not consider the potential to generate higher future revenues due to sustainable innovations, and also lack consideration of different scenarios such as higher standards in legislation or consumer demand. To address these shortcomings the Sustainability Delta model is developed. Simulation results on the sugar manufacturing industry in Brazil demonstrate that by using the Sustainability Delta we estimate an improved firm value of 1.24%. The Sustainability Delta would allow for a more accurate valuation of firms as well as for the more effective allocation of capital for investors, which should bring market pressure to improve sustainability practices and thus contribute to sustainable development. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment

Suggested Citation

  • Rodrigo Zeidan & Heiko Spitzeck, 2015. "The Sustainability Delta: Considering Sustainability Opportunities in Firm Valuation," Sustainable Development, John Wiley & Sons, Ltd., vol. 23(6), pages 329-342, December.
    • Handle: RePEc:wly:sustdv:v:23:y:2015:i:6:p:329-342
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    Cited by:

    1. Vu Le Tran & Guillaume Coqueret, 2023. "ESG news spillovers across the value chain," Financial Management, Financial Management Association International, vol. 52(4), pages 677-710, December.
    2. Khine Kyaw & Steen Thomsen & Sirimon Treepongkaruna, 2022. "Firms' potential for economic sustainability and firm value: The moderating role of blockholders," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 884-901, October.
    3. Yaghoub Abdi & Xiaoni Li & Xavier Càmara‐Turull, 2022. "How financial performance influences investment in sustainable development initiatives in the airline industry: The moderation role of state‐ownership," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1252-1267, October.
    4. Faozi A. Almaqtari & Tamer Elsheikh & Omar Ikbal Tawfik & Mayada Abd El-Aziz Youssef, 2022. "Exploring the Impact of Sustainability, Board Characteristics, and Firm-Specifics on Firm Value: A Comparative Study of the United Kingdom and Turkey," Sustainability, MDPI, vol. 14(24), pages 1-27, December.
    5. Pochara Arayakarnkul & Pattanaporn Chatjuthamard & Sirimon Treepongkaruna, 2022. "Board gender diversity, corporate social commitment and sustainability," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1706-1721, September.
    6. Arim Park & Huan Li, 2021. "The Effect of Blockchain Technology on Supply Chain Sustainability Performances," Sustainability, MDPI, vol. 13(4), pages 1-18, February.

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