Missing Metrics that Matter to Investors : How Companies Can Develop ESG Financial Value Creation Metrics

Investment in companies that leverage superior environmental, social, and governance (ESG) performance to enhance financial results would increase if mainstream investors could discern whether companies' ESG strategies help, hurt, or have minimal impact on financial performance. We propose ESG value creation metrics that indicate the impacts of a company's ESG strategy on line items in its financial statements, and thus the strategy's impacts on earnings, cash flow, and value. By clarifying the causal connection between a company's ESG and financial performance, ESG value creation metrics provide investors, senior executives, directors, and other decision makers with better information about how much value a company's ESG strategy creates. We also propose a three-step process through which companies can design an effective ESG strategy and value creation metrics