Deloitte: Environmental, Social, Governance Performance Affects Organization's Market Value

Tue Feb 12, 2013 9:53am EST

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NEW YORK,  Feb. 12, 2013  /PRNewswire/ -- According to a new Deloitte report, an
organization's environmental, social and governance (ESG) performance can
directly and indirectly impact its market valuation. The report reveals both
short and long-term implications of ESG management.  


The report highlights that short-term ESG issues and events, including human
rights issues, product recalls, boycotts and protests often trigger the
strongest and most immediate impact on stock prices. As the news media continues
to discuss an organization's ESG crisis, this can further erode shareholder

"ESG issues are particularly vexing because they can arise anywhere in a
company's value chain. Many ESG risks - from labor protests and safety concerns
to ecosystem damage - are embedded in vast corporate supply chains, where they
are getting more attention," said  Eric Hespenheide, a partner at Deloitte &
Touche LLP who serves as audit and enterprise risk global leader for Deloitte's
Sustainability practice. "For many companies, these are often reputation risks -
guilt by association - rather than direct operations or financial risks, and
these risks cannot simply be outsourced."  

While investor decisions can be influenced by a company's ESG disclosure around
the time of a crisis, there is less convincing evidence that ESG performance
leads to higher stock returns over the long-term. This may be a result of only
small incremental ESG program shifts or reporting that does not resonate
directly with investors, who may not consider the information in their buy/sell
decisions. For companies to protect themselves against ESG crises when they
arise and to be rewarded by investors for their ongoing ESG management efforts,
they need to consider whether to disclose information that explicitly ties these
efforts to reductions in exposure to ESG risks.

Deloitte's report highlights how and why ESG performance is expected to continue
to be a consideration in financial valuation and several reasons risks may play
an increasingly important role on performance:

* The average investor is paying more attention to ESG information, especially
related to downside risks.  
* Volatility in the global business environment due to financial risks,
regulatory uncertainty, extreme weather and social unrest are all more critical
and persistent than previously thought.  
* Today's lean supply chains are often brittle and vulnerable to disruption
because supply chain managers may be too focused on efficiency.  
* The rise of social media rivals the impact of public politics and regulatory

"A closer look at ESG by the numbers suggests that it is a lens through which
business leaders can build better, more resilient, and more valuable
enterprises," said  Dinah A. Koehler, a senior research manager with Deloitte
Services LP and coauthor of the report.

The other reports in this series include: "Disclosure of Long-Term Business
Value," which highlights the intangible value of ESG; "Drivers of Long-Term
Business Value: Stakeholders, Stats and Strategy," which demonstrates how ESG
commitments influence stakeholder.

To view the "Finding the Value in Environmental, Social and Governance
Performance" report visit:  .

About Deloitte's Sustainability Services Group  
Deloitte's sustainability services group draws on the insights and experience of
Deloitte's four primary businesses - consulting, audit, tax, and financial
advisory services - and industry-specific practices across corporate strategy
and operations, supply chain, mergers and acquisitions, human capital and
enterprise risk management. The result is a broad set of capabilities that
address a range of domestic and global business opportunities and risks related
to energy supply, demand and efficiency, water and other resource scarcity,
carbon and greenhouse gas regulation and demand for increased transparency and
confirmation of non-financial performance. For more information, visit:

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries.
Please see  for a detailed description of the legal
structure of Deloitte LLP and its subsidiaries. Certain services may not be
available to attest clients under the rules and regulations of public

SOURCE  Deloitte

Tourang Nazari, Public Relations, Deloitte, +1-703-251-1681,; or Laura Alito, Hill+Knowlton Strategies, +1-202-944-1913,

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