Sustainable Finance: Evaluating ESG Factors and Impact on Valuation

This assignment provides a comprehensive case study on sustainable finance, focusing on ESG (Environmental, Social, and Governance) factors and their impact on company valuation. It begins with an industry overview of ESG priorities for global telecommunications based on the SASB standard, analyzing ESG priorities as stated by British Telecom and France Telecom, and addressing issues reported by non-profit stakeholders. The study further examines variances in ESG priorities and their implications for decision-making, recommending the disclosure of significant information to assist in informed investment decisions. The assignment also presents an argument against the sole use of ESG criteria to value companies, highlighting the importance of considering revenue contribution and economic context. Furthermore, it touches upon sustainable soft commodities, the challenges of implementing ESG priorities, and explores Green Real Estate Investment Trusts (REITs), including their activity, financing model, government programs, metrics for measuring environmental impact, and financial performance. Finally, it delves into impact investing, detailing its operating and financial models, metrics for measuring social impact, and overall financial performance. The document is available on Desklib, a platform offering study tools and resources for students.

Sustainable Finance

Table of Contents
1. Case Study.........................................................................................................................................2
a. Industry overview of ESG-priorities for global telecommunications based on the SASB standard
...........................................................................................................................................................2
b. The SASB ESG-priority analysis...................................................................................................2
c. Listing of the ESG-priorities as stated by British Telecom OR France Telecom...........................3
d. Issues which are being reported by non-profit stakeholders..........................................................4
e. Variances between the ESG-priorities...........................................................................................5
f. Decision making.............................................................................................................................5
g. Recommendation...........................................................................................................................6
2. Argue against the use of ESG to value companies.............................................................................6
3. Sustainable soft commodities............................................................................................................8
The key ESG-priorities......................................................................................................................8
Challenges to implementing ESG-priorities......................................................................................9
4. Green Real Estate Investment Trusts...............................................................................................10
Activity............................................................................................................................................10
Financing Model..............................................................................................................................10
Government Programs uses to complement the financial performance...........................................11
Metrics used to measure environmental impact...............................................................................11
Impact of environmental criteria on the financial performance.......................................................11
Actual financial performance of the REIT.......................................................................................12
5. Impact Investing..............................................................................................................................12
Operating model..............................................................................................................................12
Financial model...............................................................................................................................13
Metrics used to measure social impact............................................................................................13
Financial performance.....................................................................................................................13
References...........................................................................................................................................15
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1. Case Study
a. Industry overview of ESG-priorities for global telecommunications based on the
SASB standard
The telecommunication business consists of two main sections that are wireless and wireline.
The wireless section assists in coordinating the correspondences through the network based
on radio cellular and also make connections between the transmission and exchanging offices
(Hioki, 2007). The wireless section provides long and short distance voice communication
services with the help of the public switched telephone network. Additionally, the wireline
transporters offer TV, broadband web and voice over web convention phone. The increase in
the need and use of the information has imposed a significant impact on the business because
of the development in tablets and cell phones.
The metrics used for measuring the ESG priorities are as follows:
 Operational environment footprint: The total energy amount that consumes cellular
electricity and fixed networks.
 Data privacy: The collection of data relates to policies and practices discussions,
usage of information, customer retention and other information (Rooney, 2006).
 Data security: The total number of breaches and security data percentage that
involves the identification information of the customers.
 Systematic risk management: The management of disruptions of technology is
important consisting of interruption duration and interruption frequency.
 Management of the end products: It consists of the materials recovery through
recycled, landfill and reused.
 Competitive behaviour: Legal and regulatory settlement amounts and fines
associated with anti-competitive practices (Wells, 2013).
b. The SASB ESG-priority analysis
The European Telecommunications Network Operators' Association produces sustainability
and environment charter which shows the commitment of the members for decreasing the
carbon footprint. The organization measures the energy consumption of the data centres and
networks and the utilization of renewable energy. The corporate social responsibility
contributes to making sustainable development through an effective management of the
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organization's social, economic and social impacts (Etno, 2018). The organization has an
appropriate relationship with the shareholders, governments, customers and employees. The
management also focuses on business ethics and principles, human rights, employee
relations, community investment, environmental management and working environment. The
organization provides all the information regarding the economic, social and environmental
impacts of the products and services.
The organization has achieved full compliance with all the legal rules and policies. The
efficient management of energy use, resources, waste, eliminating hazardous materials,
environmentally products, examination of labour conditions and human rights. The
organization provides economic, social and environmental information to all the stakeholders
(Naumann, 2012). The organization has maintained cooperation with civil society, industry
partners, international organizations, customers and governments. The corporate governance
structure is being developed for carrying out the business operations in an appropriate
manner. The management also creates a working environment that encourages professional
development, work-life balance, health and safety, diversity and highly productive and
motivated workforce. The privacy and security factors are also taken into account which is
being dealt with innovative ideas in order to satisfy the needs of the customers (Peng., 2013).
c. Listing of the ESG-priorities as stated by British Telecom OR France Telecom
The ECG factors need to assess and examine in order to engage in a more holistic and
complementary approach to the investment analysis. The investors can get information from
the reports published by the organization. The organization is the part of the United Nations
in order to support the responsible investment (BT, 2018). The principle permits the investors
in incorporating the environmental, social and governance considerations into the decision
making ownership priorities and investment analysis. The organizations need to provide
significant information to the investors on the basis of which they can make decisions. The
British Telecom has also taken into account the environmental factors, social factors and
governance factors for ensuring smooth functioning of the business operations.
The ESG priorities stated by British Telecom are as follows:
Environmental factors
 Carbon emissions and climate change
 Water/air pollution
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 Water scarcity
 Energy efficiency
 Deforestation
 Waste management
Social factors
 Data privacy/protection
 Product safety
 Diversity and gender
 Supply chain management
 Employee engagement
 Labour standards
Governance factors
 Audit committee structure
 Board composition
 Lobbying
 Corruption and bribery
 Political contributions
 Executive compensation
d. Issues which are being reported by non-profit stakeholders
The non-profit stakeholders are facing difficulties in terms of legitimacy and transparency.
They are being asked about their expenditures and related costs. The stakeholder always
wants to save the maximum amount of costs associated with their businesses because they
invest for the welfare and development of the society. Most of the times they face deficit
budget and their flow of money is not improving but their services are diversifying with time
(Landrum and Edwards, 2009). They are analyzed that the demographic is changing with the
economic variations which led to the increase in demand. The competition has also been
increased for them in terms of financial funds. The aiding bodies and authorities have found
that the non-profit organizations are doing the appropriate job by maintaining excellence in
their work. Another issue reported by the non-profit organization increases in the pressure
and carrying out their job with less revenue. In order to provide better services, they have to
maintain the high-quality standard.
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The human resource plays a significant role in non-profit organizations. The institute needs to
invest in the human capital for creating a sustainable future. The investment in staffs and
employees does not go in vain as they organization gets loyalty and support of the
stakeholders and employees as well. The positive work which is being carried out by the non-
profit organizations is also being hidden by the non-visibility (Pfister, 2018). The work needs
fast speed and sound visibility of the information in order to fulfil the objectives. The social
media need to be used positively for developing their image and delivering the information
and news to the public.
e. Variances between the ESG-priorities
The variances can be found between the ESG priorities listed because of the passage of time.
The case was written many years ago and with the passage of time, many changes have been
observed. The changing needs of the investors and organizations have led to the variances in
the ESG priorities (Krosinsky and Purdom, 2017).
f. Decision making
The ESG framework can be modified for providing significant and more information that is
as follows:
 The sustainability definition varied from organization to investor to nation, citizen to
citizen and sector to sector. Sustainability needs to be defined and explained in a way
that the actions are linked to the resource availability, health trends, incorporate
externalities and standard of living. It will help to make decisions quickly and
appropriately (Portney, 2015).
 Sustainability should not only rely on only financial but also include other factors
also. The sustainability value is difficult to translate into the financial value. The
business comparisons should be made and also be focused across products and
organizations.
 The organizations can make decisions to invest in a project or sector on the basis of
the ESG factors but some problems are not possible to mitigate with the
implementation of one strategy. The systems thinking and system dynamics shows the
limits of the model which is being adopted for seeking sustainability. The systematic
changes can be done focusing on the needs of the stakeholders (Thorne, 2018).
 ESG opportunities and risks for the publicly traded organizations can occur over a
time period and investment activities show the value for over ten or twenty-year time
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frame. A long-term or midterm investment horizon can obstruct the movement of the
price of stock in the short term. Thus, financial goals and sustainability should be
aligned with the long-term and the strategy can also be work in the short term against
each other.
 The ESG calculation is not seen to be straightforward. The methodologies used have
depicted variations which are not considered to be appropriate. The reporting is also
being appropriate which is opposed to the audited SEC filing externally. The ESG
incorporating by the analyst into their suggestions should understand the practices
such as consistent in time updates and data collection into their reports (Krosinsky,
2012).
g. Recommendation
The company should provide all the significant information that assists in making decisions.
It is expected that the organizations should disclose information related to social,
environment and government. The investment made by the organizations into the ESG
priorities depicts that the management thinks and takes care of its stakeholders. The
organizations focus on their growth but the investors always focus on the risks (Krosinsky,
2012). The organization is expected to carry out their business operations ethically and
appropriately. The ESG data plays a significant in making decisions of equity investment. It
is important for the organizations to disclose the ESG priorities into their sustainability
reports. The data on the investment and management on the environmental, social and
governance aspects helps to make the decisions. The organizations focusing and putting
efforts in providing the information related to the ESG priorities are considered to be
beneficial for both the management and investors.
2. Argue against the use of ESG to value companies
The ESG criteria are not sufficient which need to be employed for evaluating the value of the
organization. There is no relation that exists between the ESG reporting and company's
return. It has found that organizations providing the ESG criteria for providing information
had also depicted decreased income. It is clear that providing ESG information and detailed
information does not bring necessarily any difference within the organization (Krosinsky and
Purdom, 2017). However, the ESG process needs to be encouraged because it leads to the
improvement of environmental sustainability and social status. ESG criteria when it comes to
Value Company should not be considered as the metric for measuring the overall value of the
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organization. For example, the organizations involved in mining and oil exploration can score
poorly inherently on the ESG criteria based scale. The organizations contribute a huge
amount of revenue into the economy bit they score may not be high on the ESG scale.
However, an example from the economy of Saudi Arabia is that the country is inclined overly
towards the production of oil because it is the sole contributor to the growth of the economy
(Ramady, 2010). The burning of oil leads to an increase in global warming but the
organizations are involved in sustaining the people of the country. It would be wrong to
undervalue an organization based on the ESG criteria performance. It is also found that it is
not clear whether the observation of the ESG criteria has any economic return benefit in
future. It can be good for the organizations to disclose ESG criteria which are valued higher
but the real truth is not that (Dhir, Dyer and Newlands, 2009). If the relationship can be found
between two organizations then the companies not disclosing the ESG reporting would
operate low on the hedge funds in comparison to the organizations to those reporting. There
is no appropriate evidence which can prove that the ESG criteria can provide long-term
benefits to the organizations. Thus, the ESG criteria cannot be considered as the best metric
for measuring the value of the organization. The global trends such as the resource shortage
and climatic changes are shifting the organization to focus and incorporate the ESG criteria.
The organization encourages a responsible investment strategy which is based on the efficient
management of the social, governance and environment issues. The investors believe that the
organizations that are able to avoid the ESG risks can carry out its operations in an
appropriate manner in long run. The investors also believe that the ESG problems have the
potential to impose an impact on the investments valuation over the long run. According to a
survey, it is being found that there has been progressing in implementing and developing
responsible investment techniques over recent years (Quistvaluation, 2018). However, there
has been a lack of policies on ESG systems and issues which is being placed for measuring
the value developed from the ESG initiatives. The organizations have to take into other
factors for ensuring responsible investment strategy. The most common drivers consist of
interest for the investors, risk management, operational efficiencies, opportunities for saving
costs and direction to the upper management. Competitive differentiation and reputation also
influence the responsible investment strategy. The significance of the drivers would
eventually dissipate the need to manage the ESG issues (Merker, 2018). There are many
organizations that lack on the implementation of ESG in order to measure its impact on the
business. The lack of internal expertise and capacity is the main reason. The measurement of
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ESG performance and determining the financial value is still considered to be a major
challenge for the organizations. It is difficult to measure the value of the organization from
the ESG activities because quantifying how much value is associated with the ESG factors is
considered to be difficult. It is also difficult to measure that whether the strong engagement of
ESG criteria can assist to value the organization (Geraghty and Vanderzeil, 2017). The
organizations believe that an appropriate approach towards the ESG priorities can increase
both business operations and earnings. Some organizations have been trying to determine
direct benefit from the ESG priorities. It consists of the savings of costs which is being
achieved from the revenue growth or eco-efficiency steps. It is difficult to determine the
indirect benefits from the ESG initiatives because for the intangible assets there is no market
price.
3. Sustainable soft commodities
The key ESG-priorities
These six key priority areas are going to focus on industry and framework activities to
manage improvement over the value chain.
 Animal Husbandry Techniques: Technique of horn removal, branding, ear making
and castration comes under Animal Husbandry Techniques. The industry focus on
finding a different way to invasive practices and before taking out necessary
procedures needs to be followed.
 Profitability across Value Chain: In order to become economically sustainable the
industry must create a way for a positive rate of return during the long-term on each
capital in cattle increasing and beef production (Beef Sustainability Framework,
2018).
 Balance of Tree and Grass Over: Mutually exclusive cannot be considered with well-
managed landscape and cattle production. The industry of beef is working to confirm
the protection of high-value conservation for better understanding and capturing
mutually beneficial practices (Schellnhuber, 2010).
 Antimicrobial Stewardship: The critical importance of animal and human is to
maintain the efficacy of antimicrobials so that infection can be treatable. The aim of
antimicrobial stewardship is to improve the safe and appropriate use of antibiotics
which reduce patient harm, also decries the incidence of antimicrobial resistance.
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 Manage Climate Change Risk: This includes greenhouse gases emitted along the
chain of beef value. It also generates methane from cattle digestion, fertilizer
application and fossil fuel which is measured by kg CO2e emitted at the time of
processing and raising beef and carbon capture and sequestration (Schellnhuber,
2010).
 Health and Safety of People in Industry: In order to the identification of the
significance of the wellbeing and safety of the worker who engaged in beef industry,
the SSG has added a six important area for action.
Challenges to implementing ESG-priorities
The private and public industry needs to acknowledge more quickly and needs take necessary
action on significant global ESG challenge. Such as a change in the climate, growth in
population and resource scarcity. All these ESG challenges have represented implication for
business, society and the economy at large, presenting risk and opportunity both at the same
time and this must be identified in order to maintain economic and social growth and stability
(Jacobsen, 2011). All these ESG challenges are specifically related to the bank to their
character as financial intermediaries and as an agent to raise capital.
The beef industry faces multiple challenges which have become a threat to the sustainability
of the current chain of the production. The beef production in the US has engaged in a supply
chain that uses high energy input to gain the carcass merit rewarded from the present grid
marketing system. It is expected that the world population going to be increased 9 billion by
the year 2050. And demand for agricultural production will also increase by 1.5% annually
(Krosinsky and Purdom, 2017). The importance of animal welfare has been increased by the
pressure from animal activities and some consumers with factory farming are giving
importance to feedlots and the facilities of industrial social parking to the current supply
chain. Additionally, it is expected that the beef consumption going to be increased in the
coming years, it must be noted that the heightened animal welfare concerns in the
international market can put pressure on producers. The European consumers are willing to
pay more products that perceive as produced by a human. Even though the great success in
the last half-century, there are some looming challenges clearly show that the beef industry
will keep involving ideas to improve efficiency. The United Nation's Food Agriculture
Organization launched some projects in response to these crises. The project has analyzed
that seventy per cent of the world's additional food required to be satisfied by improving the
method of existing production by introducing new technologies (Kanninen, 2013). Due to this
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pressure, it is necessary that the changes will have to come to the current production system.
It might possible that the well-marbled cuts become a luxury as the need for good production
efficiency is at odds with per cent meet quality goals putting pressure to shit in the way beef
is being consumed. It will become important for meat scientists to improve the quality of the
product while preserving food safety. In result, a greater burden will be placed on the large
animals; the medicine will not only be to preserve the health and well-being of changing
herds but also to preserve the integrity of production chain as well. In some regions of the US
provides grazing environment which could lessen the effect of these anticipated shifts in the
beef industry and thus may bring changes in the food delivery chain. While the challenges
are being faced by the industry in coming years loom large, there no second thought that the
challenges can be overcome.
4. Green Real Estate Investment Trusts
Green REIT plc is a commercial property company. It is the largest listed company by its
asset and market capitalization. It also owns a portfolio of commercial property assets which
is located mainly in Dublin. Green REIT mainly focuses on developing of those properties
which are already acquired by them rather than buying new assets.
Activity
Green REIT plc is based in Ireland and it is a real estate investment trust company. The
company deals with commercial property investment and development for the Republic of
Ireland. The company maintain for business segments: Industrial Asset, Retail Asset, Office
Asset and Other Assets. And it also owns a portfolio of commercial property assets which is
located in Dublin. The portfolio of the company includes Industrial development, office retail
and others. The office portfolio includes One Albert Quay, 76-78 Harcourt Road, One
Molesworth Street, George's Quay Plaza Block A George's court and Westend Commercial
Village, among others. The retail portfolio includes Central Park. The industrial portfolio
includes INM Media printing work and Horizon Logistic Park and other portfolios are Arena
Centre. It covers an area of approximately 420,000 square feet for its development project
(Green REIT PLC, 2018).
Financing Model
The financial model of Green REIT consists of the preparation of the financial statements for
a period of time. The financial statements consist of a consolidated statement of
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comprehensive income, consolidated statement of financial position, consolidated statement
of changes in equity and consolidated statement of cash flows. The consolidated statement of
comprehensive income depicts the income, expense and profit or loss of the organization
(Wolf, 2010). The consolidated statement of financial position depicts the assets and
liabilities of the organization. The consolidated statement of changes in equity shows the
equity value and its changes of the organization. The consolidated statement of cash flows
shows the flow of cash (Green REIT, 2018).
Government Programs uses to complement the financial performance
The rate of stamp duty on commercial real estate transactions has been increased by the Irish
government from 2% to 6% and it has to be a part of the 2018 budget with immediate effect.
The unexpected increase in stamp duty will increase tax and it will affect a one-off reduction
in the value of the company's property portfolio and also NAV of €55.5 million. It might also
affect share by 8 cent share. However, the higher rate of stamp duty does not seems to be
harmful to the Irish real estate transactions volume (Aras, 2016).
It is predicted by the Irish government that debt-to-GDP is going to be 64% by the end of
2018. Addition to that the price for servicing the government has decreased 25% since it was
higher in 2012 due to the reduction of debt levels and refinancing of debt at a lesser cost. The
government revenues and expenditure supposed to be balanced for 2018.
Metrics used to measure environmental impact
The key objective of Green REIT plc is to monitoring and reporting on all available energy
like water and waste data. The company collects data of all landlords on a quarterly basis and
benchmarked against industry best practice. A considerable improvement has been seen in
the collection of tenant data from all the buildings. The tenant data collection was 6.7% in
January 2016, which has increased to 41.2% in December 2017. A pre-acquisition sustainable
due diligence protocol has been established which covers building surveys, environmental
risk, flood risk and building qualification etc. And also a review of energy sub-metering has
been completed and has launched an idea for upgrading meters where feasible (Ball, 2013).
Impact of environmental criteria on the financial performance
Green REIT plc has realized that the social and environmental factors are creating a huge
impact on the value of their investment properties. In order to reduce the running cost of the
property, the green building is going to play a very important role. It is the future of the real
estate investment business. Green REIT plc has started focusing to get leadership in energy
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