Importance of Non-Financial Factors in Investment Proposals Analysis

This report delves into the crucial role of non-financial factors in evaluating large investment proposals. It emphasizes that investment decisions should not be solely based on financial analysis, highlighting the significance of factors like corporate strategy alignment, employee safety, legal compliance, and market analysis. The report further explores the importance of sustainability, citing environmental degradation, public scrutiny, and its role in business strategy and competitiveness as key reasons for its consideration. An example of an investment by Jardine Matheson Holdings Ltd is provided to illustrate these concepts. The report underscores the need for a holistic approach to investment appraisal, considering both financial and non-financial aspects for successful outcomes.

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Table of Contents
Importance of Considering Non-financial Factors in Evaluating Large Investment Proposals.2
Reason to Consider Sustainability as an Important Factor in Investment Proposals.................3
Example of an Investment..........................................................................................................4
Refefences..................................................................................................................................5

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Importance of Considering Non-financial Factors in Evaluating Large Investment
Proposals
Investment appraisal is considered as a planning process that is used for determining
whether a company’s long-term investments are worth the funding of cash through the
capitalization structure of the firm. The presence of both financial and non-financial factors
can be seen for appraising an investment. However, a crucial aspect of investment appraisal is
that the investment decisions cannot be wholly based on the analysis of financial factors
because there are other soft non-financial factors of the investment appraisal that need to be
carefully considered. One main reason for considering the non-financial factors is that they
provide the investors with the insight to the corporate strategy and objectives; and this helps
the auditors in ascertaining the fact that whether the strategies adopted by the companies are
aligned with their objectives1. Safety of the employees and public is another major non-
financial factors that provides the investors with the insight on the impact of the investment
project on the safety and security of the organizations employees as well as safeguarding the
society or community. There are many instances where investors did not select the financially
viable investment projects because of its dangerous effects on the employees and
environment. Additionally, non-financial factor like legal requirements, norms and actions
provides the investors with the insight on whether the company has well compliance with the
legal rules and regulations which is needed for meeting the government requirements.
Another crucial non-financial factor is the customer market in case of the analysis of new
products and demand because of the fact that this helps the investors in providing information
on the availability of required resources like raw materials, powers and other basis facilities
1 Sievers, Soenke, Christopher F. Mokwa, and Georg Keienburg. "The relevance of financial versus non-
financial information for the valuation of venture capital-backed firms." European Accounting Review 22.3
(2013): 467-511.

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that is necessary for projects2. The above discussion implies that the analysis of non-financial
factors provides the investors with the knowledge of the other crucial factors that are needed
to the smooth and successful completion of the investment projects. Therefore, it is important
to consider the non-financial factors when evaluating large investment proposals.
Reason to Consider Sustainability as an Important Factor in Investment Proposals
Sustainably is considered as a major issue in today’s business community and there
are many reasons that explain why the investors are needed to consider sustainability in their
investment appraisal decision. They are discussed below:
 Environmental degradation as well as the impact of climate change is a material
business risk which includes sustainability issues like water, climate change, extreme
weather and others. These issues create unforeseen risks in the corporate value chains
that include both environmental risks and business risks. Large corporations operating
in the food sector are especially vulnerable. The interconnected nature of
environmental threats can also lead to pour risks. Natural disasters like draught
hampers the production of large companies. These are crucial sustainability factors
that need to consider3.
 Companies that are responsible for damaging the environment can no longer hide
because of the fact that they operate in a global system. For instance, NGOs are taking
benefit from advanced information, communication technologies, social media and
others to expose the companies’ business practices that are responsible for
environmental damage. In addition, there are different investor-friendly tools that
provide information on the linkage between the operational and environmental
2 Haselip, James, Denis Desgain, and Gordon Mackenzie. "Non-financial constraints to scaling-up small and
medium-sized energy enterprises: Findings from field research in Ghana, Senegal, Tanzania and
Zambia." Energy Research & Social Science 5 (2015): 78-89.
3 Hammer, Janet, and Gary Pivo. "The triple bottom line and sustainable economic development theory and
practice." Economic Development Quarterly 31.1 (2017): 25-36.

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conditions of the companies. For this reason, it is needed to consider sustainability as
a crucial factor for investment appraisal.
 Sustainability is considered as a major driver of business strategy and competitiveness
within the organizations; and this provides the companies with an opportunity to gain
competitive advantage. Business organizations are considering the fact that
sustaibailty is going to transform their industry in near future; and thus they are liking
sustainability performance with their compensation structure. For this reason, the
companies have started talking more about sustainability to their investors4.
Therefore, it is needed to consider sustainability as a crucial factor in investment
appraisal.
Example of an Investment
Jardine Matheson Holdings Ltd is one of the major listed corporations of Singapore.
In the year of 2018, the company invested US$2,181 million in different associates and joint
ventures; and the main one is the land investment in Hongkog Land of US$1,367 million for
the development of property projects in mainland China that includes the Nanjing,
Chongqing, Shanghai and Chengdu joint venture projects; US$273 million in joint
development projects in Thailand and investment of US$63 million in joint venture in
Vietnam. In addition, other investments include 20% investments of Dairy Farm in Robinson
Retail in the Philippines with a 12.15% interest5.
4 Pearce, David, Edward Barbier, and Anil Markandya. Sustainable development: economics and environment
in the Third World. Routledge, 2013.
5 Jardines.com. N. p., 2019. Web. 30 Aug. 2019.

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Refefences
Hammer, Janet, and Gary Pivo. "The triple bottom line and sustainable economic
development theory and practice." Economic Development Quarterly 31.1 (2017): 25-36.
Haselip, James, Denis Desgain, and Gordon Mackenzie. "Non-financial constraints to
scaling-up small and medium-sized energy enterprises: Findings from field research in
Ghana, Senegal, Tanzania and Zambia." Energy Research & Social Science 5 (2015): 78-89.
Jardines.com. N. p., 2019. Web. 30 Aug. 2019
Pearce, David, Edward Barbier, and Anil Markandya. Sustainable development: economics
and environment in the Third World. Routledge, 2013.
Sievers, Soenke, Christopher F. Mokwa, and Georg Keienburg. "The relevance of financial
versus non-financial information for the valuation of venture capital-backed
firms." European Accounting Review 22.3 (2013): 467-511.