Environmental, Social, and Governance Factors at Listed Companies

Successful investing is dependent on one's ability to discern the factors that influence the market's valuation of a company and then judge the accuracy of that valuation. Analysts are generally well versed in using financial metrics to understand those drivers of corporate value and lend skilled interpretation to what is often highly detailed accounting data. In recent years, however, nonfinancial factors—including environmental, social, and governance (ESG) factors—have figured ever more prominently in the value of corporations. Traditional financial analysis already accounts for certain "intangibles"—such as goodwill—but up to this point has been less successful in integrating more dynamic, nonfinancial attributes. ESG factors represent a broad set of intrinsic concerns that may ultimately affect valuation of equity, fixed-income, real estate, and infrastructure investments.

This manual, a supplement to our 2005 publication The Corporate Governance of Listed Companies: A Manual for Investors, aims to help investment professionals identify and properly evaluate the risks and opportunities ESG issues present for investors in public companies, and in the process clarify the relatively sparse and inconsistent information provided in current financial statements.