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ESG-Driven Valuation: From Father Profit to Mother Nature

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Augmented Corporate Valuation

Abstract

Capital consists of assets used to produce goods and services. Whereas financial capital—i.e., monetary equity conferred by the shareholders in a business entity—has traditionally been a scarce and expensive resource, other complementary forms of equity have progressively emerged.

Book versus market value of equity/capital is formed by (in)tangible capital and/or (non) monetary equity. These traditional features of capital are being complemented by social and human components, harder to detect in accounting terms and so to appraise. Social/human capital, or variants represented by circular, narrative, relational, or reputational capital, are increasingly used and embedded in ESG metrics that are part of the wider Sustainable Development Goals (SDGs). Network capital links firms to the external ecosystem, promoting joint ventures increasingly mastered by digital platforms.

Sustainability emerges as a common denominator of any equity/capital definition that needs to be continuously nurtured by complementary stakeholders to achieve long-lasting survival strategies. Even the beneficiaries of capital exploitation go well beyond the narrow boundaries of shareholding stakes. Even if sustainability embraces social and environmental issues, its economic features represent the backbone for long-term durability (… no money, no party). Sustainable capital is counterbalanced by mostly intangible assets, as they reflect immaterial features consistent with ESG patterns.

This chapter shows how the complementary capital/equity sources interact in the formation of shared and long-lasting wealth. Implications ignite an insightful reexamination of corporate finance core principles and jeopardize value creation and measurement patterns. Cost of capital smart collection fosters “augmented” business planning, nurtured by timely feedbacks of value co-creating stakeholders. Sustainability patterns overcome the Malthusian deadlock of overexploitation, when the bones of society fracture, readdressing the capital where it is most needed, so maximizing its socio-economic return.

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Notes

  1. 1.

    https://en.wikipedia.org/wiki/Capital.

  2. 2.

    https://www.investopedia.com/terms/c/capital.asp.

  3. 3.

    http://lexicon.ft.com/Term?term=ESG.

  4. 4.

    Adapted from MSCI (2014). MSCI ESG Intangible Value Assessment, https://www.msci.com/documents/10199/25a39052-0b0e-4a10-bef8-e78dbc854168.

  5. 5.

    https://www.investopedia.com/terms/g/greenwashing.asp.

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  1. Catholic University of the Sacred Heart, Milan, Italy

    Roberto Moro-Visconti

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  1. Roberto Moro-Visconti
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Correspondence to Roberto Moro-Visconti .

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Moro-Visconti, R. (2022). ESG-Driven Valuation: From Father Profit to Mother Nature. In: Augmented Corporate Valuation. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-97117-5_8

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