Portfolio Management - ESG Analysis Valuation and Integration

Idea Generation.

How can ESG analysis be integrated into investment decisions?

Incorporate ESG factors as screeing criteria such as seeking high G scores or avoiding low G scores.

Or looks for companies with positive exposure to industry or megatrends

Materiality Assessments.

What should be done after the company is selected? How is it measured?

Conduct a matterialllity assessment to identify ESG issues that are likely to have an impact on the company’s financial performance.

Such as greenhouse gases for airline company’s.

Measured in terms of both the likelihood and magnitude of impact.

Forecasting and Valuation.

How to change forecasts based on ESG ratings?

At this stage investors will integrate the impact of material ESG factors into financial statement forecasts. Either discounting or multiplying future cashflows.

They can also adjsut the discount rate.

Forecasting and Valuation

What factors effect the size of the discount rate?

• How significant the ESG factor is on finances.

• How well or poorly the ESG risk is managed.

• Look at typical ranges for the disocunt factors.

Investment Decision and Post-Monitoring

How to make a decision and what to do after?

If current stock price is lower than fair value you may consider buying it or vice versa.

It is also important to consantly monitor how ESG factors are controlled and unfold.