Report Urges New Approach to Valuing Businesses

Barcelona, 22 Sept – For many years there have been inconclusive attempts to prove that improved environmental, social and governance (ESG) performance positively affects overall business performance. Now a new report from a European research team proposes that companies and investors should focus instead on core elements of non-financial performance.

The researchers say that these core elements of non-financial performance, which reflect wider ESG factors, make improved performance easier to isolate and identify. The research team led by the Doughty Centre for Corporate Responsibility at Cranfield School of Management brought together academics from SDA Bocconi School of Management in Milan and Vlerick Leuven Gent Management School in Belgium.

The report – “Sustainable Value” – looks in detail at how ESG performance impact business success, how companies explain these linkages to investors, and how the investment community treats this data. It goes on to argue that growing sustainability pressures are likely to make these linkages more important in the future.

The report also notes how the traditional focus on narrowly defined “shareholder-value” poses a set of obstacles to assessing the value of ESG activities due to factors such as:

  • Limited or non-existent data suitable for cross-company comparison
  • Lack of evidence for linking ESG performance with general performance
  • Confusion of terminology and shifting definitions between actors
  • Lack of incentives to present positive ESG impacts
  • Disconnects between ESG specialists and Investor Relations experts within companies
  • To overcome these obstacles, the report proposes that value be redefined as ‘sustainable value; and sets out a ‘Value Creation Framework’ which can be used both by business and the investment community. An operationalised management version of it has been developed by the parallel European Alliance for CSR laboratory (, run with the support of CSR Europe.

    A number of organisations have expressed strong interest in collaboration on implementation of the Value Creation Framework and / or providing access for follow-up research opportunities. Consequently, the report explores how collaboration might evolve over the next 1-2 years, creating a critical mass of pioneer companies and investors using the Value Creation Framework to explain risks associated with not embedding sustainability, and the opportunities potentially accruing to businesses from doing so; and how this can be factored into investor valuation models.

    In view of this, the report asserts that corporate CEOs whose companies have already started to embed CR and sustainability and are seeing improved ESG performance, should be engaged to champion such linkages and results. Further, there needs to be a change in the mindset of the mainstream investment community. This requires investor training and changes to how investors (individually and institutionally) are measured and incentivised / rewarded, as well as a change in time-frames from a fixation with quarterly earnings to a more sustainable model.

    This is the final report from a two-year research project funded by the Corporate Founding Partners of EABIS (European Academy for Business in Society): IBM, Johnson & Johnson, Microsoft, Shell and Unilever; with additional support from Lloyds Banking Group and Telecom Italia who have also led the European Alliance for CSR Laboratory.

    The research report and associated papers, launched at the 8th Annual EABIS Colloquium in Barcelona on 21–22 September 2009, are available from the project website at

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