A Framework to Assess ESG Value Creation, Perspectives Paper

IVSC (2021) | Asset Management, Risk Mitigation, Valuation

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As environmental, social, and governance (ESG) factors become central to corporate strategy, many enterprises are actively tracking how sustainability-related investments influence their ESG ratings. However, few have taken the next critical step of quantifying how these investments translate into financial return. Traditional corporate finance tools, which are designed to measure ROI through tangible outputs such as profits and cash flows, are not suitable for measuring the value of ESG initiatives, which often yield non-financial outcomes such as brand equity, stakeholder trust, or regulatory resilience.

Initial ESG investments have been the subject of much acclaim, but to ensure that capital is allocated in a disciplined manner, companies require a more analytical framework with which to assess whether such investments truly create value. This second IVSC Perspectives Paper builds on the first, which explored ESG's role in bus…