Joint Cornerstone – ValueScope Effort Outlines ESG Performance Valuation Methodology
Cornerstone Government Affairs and ValueScope have jointly published a white paper outlining a methodology for providing valuations on Environmental, Social and Governance (ESG) disclosures and performance. The paper, ESG: A Valuation Framework, outlines the process for defining, measuring and valuing ESG performance and details two case studies in the energy sector, where ESG performance can be, and has been, valued.
The paper proves false the long-held notion that ESG performance cannot be qualitatively valued and demonstrates that defined and modeled ESG programs become less risky than their peers. This causes programs’ alpha and beta numbers to be adjusted positively, demonstrating higher investment performance and lower risk, which, in turn, impact the Capital Asset Pricing Model, lowering a company’s cost of capital and increasing its valuation. Because much of ESG programs are intangible, common and customary techniques already used for valuation of brands, trade names and customer relationships can be applied to ESG Assets using both the Multiperiod Excess Earnings Model (MPEEM) and the Differential Income Model (DIM).
Through a strategic partnership, Cornerstone and ValueScope have developed a combined service offering, ESGv, where we define, measure and value ESG programs and performance. This unique offering is the first of its kind in assessing, developing and communicating robust and value-generating ESG programs, which demonstrate real value to investors, regulators and the market.
“We are thrilled to collaborate with ValueScope and offer this white paper demonstrating that ESG performance can be defined, valued and measured,” said Jack Belcher, principal of Cornerstone’s Advisory Services. “This is something the market has been demanding and now it can be delivered.”
“This paper demonstrates that by using existing ESG frameworks, like SASB, and existing valuation techniques, MPEEM and DIM, we can create ESG programs for companies and calculate the value they create,” said Tom McNulty, ValueScope principal and head of its Energy Practice.
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Cornerstone is a leading provider of advisory services to companies seeking to develop and enhance their ESG programs, evaluate competitors, improve their scores, and communicate their results. We also work with financial institutions to evaluate their portfolios, improve ESG performance and reduce risk. Our services and clients span multiple sectors, including those with the greatest ESG challenges resulting stakeholders’ ever-increasing focus on climate. For more information, please visit https://cgagroup.com/services/strategic-advisory-services-and-business-consulting/environmental-social-governance/.
ValueScope is a valuation and analytics firm, capable of valuing nearly everything, and often called on to improve value. ValueScope values esoteric things, such as derivative instruments, loan guarantees, human capital, corporate damages, even life itself. The firm has deep financial analytics skills: predictive and probabilistic modeling, determining economic substance, and complex intangible asset analysis.