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

In: Green Finance and Sustainable Development Goals

Author

Listed:
  • Murad Harasheh
  • Giovanni Cardillo

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.

Suggested Citation

  • Murad Harasheh & Giovanni Cardillo, 2024. "The Relevance of Environmental, Social, and Governance Issues in Corporate Valuation: Concepts and Reflections," World Scientific Book Chapters, in: Sabri Boubaker & Thai-Ha Le (ed.), Green Finance and Sustainable Development Goals, chapter 9, pages 243-266, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800614482_0009
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    More about this item

    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;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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