ESG and the Value of Your Business

Environmental, Social and Governance (ESG ) has become a hot topic. Investors, buyers and lenders are all aware of the importance of ESG when making investment decisions. As a result, companies must pay attention to improving their ESG performance. Researchers have also shown there is a relationship between ESG ratings of companies and their valuation.

ESG represents that corporations should take more interest in society and nature rather than just generating profits, and that a genuine ESG strategy and approach can improve profits. The significance of ESG has been widely popularised, and regulators are increasingly concerned about ESG-related disclosures. At a more practical level, SMEs that deal with government (as a supplier), larger corporates, investors (including buyers) and lenders (most banks will now include an ESG rating as part of their risk profile and, therefore, pricing matrix) must address ESG or miss out on the contract renewal, the investment, or the finance they seek.

MSCI uses an ESG rating model that uses 10 ESG rating themes from three dimensions – environment, social responsibility and corporate governance, and further refines them, dividing them into 37 key issues as shown below.

A new study published in the Journal of Portfolio Management reveals that a company’s ESG information, as provided by the channels in the MSCI ESG rating data, has a direct impact on its performance and valuation. The research shows that ESG information affects a company’s systematic risk profile, which leads to lower capital costs and higher valuations, as well as its idiosyncratic risk profile, resulting in higher profitability and lower risk exposure. This suggests that a company’s ESG characteristics are a valuable financial indicator that can be incorporated into policy benchmarks and financial analysis.

According to the Pitcher Partners Business Radar Report, Understanding the Businesses that Drive Australia’s Economy, mid-market businesses are simply not up to speed:

We are about to release an update to our Capitaliz software which will include an ESG rating system and scorecard so you can assess your business performance and identify areas where poor ESG performance may affect your business.

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.