Research On The Influence Of ESG On Corporate Valuation By Income Method

Today,after experiencing the "black swan" event and the new crown epidemic,people around the world are paying more attention to humanistic care and sustainable economic development than ever before.In my country,the top-level design of the "dual carbon" goal has stimulated the market’s attention to green enterprises.In this context,a concept known as "ESG" spreads rapidly.Throughout the cycle,companies conduct ESG management in anticipation of longer-term growth,rating agencies provide ESG ratings,and capital markets invest in ESG in anticipation of excess income.In fact,ESG is not a new product.It is the abbreviation of "environment,society and corporate governance".It is three important aspects extracted from many factors of sustainable development.separate methodology.However,when reviewing relevant literature at home and abroad,it is found that the existing literature mainly focuses on the empirical research stage of the relationship between ESG and corporate value,and because the rise of ESG investment in China is later than that in foreign countries,there is even less literature on empirical research in China..Regardless of domestic or foreign countries,there is no widely accepted ESG valuation framework,and there are few literatures analyzing the value of ESG management to enterprises with typical cases.This paper hopes to summarize the process framework for incorporating ESG into income-based valuation by reading empirical research literature and ESG valuation cases disclosed by investment institutions.At the same time,Baosteel Co.,Ltd.is selected as a case to analyze its ESG management performance.Baosteel’s ESG management is integrated into the valuation process.Baosteel Co.,Ltd.is one of the "Top 500 Chinese ESG Excellent Enterprises" and a typical case of ESG management of research companies.This paper summarizes an ESG valuation framework as follows:(1)select the sub-factors that are material to the target industry and company among the many sub-factors of ESG;(2)conduct a scenario analysis: ESG that brings “explicit”opportunities and risks Factors should be put into the base scenario,and ESG factors that bring “hidden” opportunities and risks should not be included in the base scenario valuation,and analysis of up and down scenarios should be carried out;(3)Use three channels to incorporate ESG factors into enterprise value under valuation.ESG management requires capital investment but also improves the company’s profitability(cash flow channel)and risk characteristics.The improvement of systemic risk can reduce the cost of capital(the cost of capital channel),while the improvement of idiosyncratic risk can reduce the company’s downside Risk(the idiosyncratic risk channel),which is more suitable for scenario analysis.For the application of the above ESG valuation framework for Baosteel Co.,Ltd.,this paper believes that the most critical ESG factor in the steel industry is carbon emission reduction in "E",followed by employee health and safety and corporate governance are "S" and "G" respectively."relatively important in the category.Under the macro environment of "carbon peaking and carbon neutrality" written into the top-level design of the country,"E" carbon emission is a "dominant" opportunity and risk for all steel companies including Baosteel,which is suitable for the basic scenario It is analyzed in the valuation,because companies will be affected whether they take carbon reduction measures or not,either to maintain or increase market share for carbon reduction investment,or choose not to pay carbon emission costs for carbon reduction investment or even a decline in market share.The health and safety of "S" employees and the storm caused by "G" are not inevitable events,and the prevention work against safety accidents and management defects will further reduce the probability of occurrence,so it is more suitable as a special risk.Downside scenario analysis.After focusing on the impact of Baosteel’s "E"carbon reduction,this paper believes that future cash inflows from market share improvement are not enough to cover the three main aspects(cash flow channels)that enterprises need to increase in R&D expenses,capital expenditures and production costs.,but take the WACC calculated in the period after the announcement of "Double Carbon" as the discount rate,and the reduction of capital cost helps to improve the valuation of enterprises(capital cost channel).Carbon reduction is already on the horizon.All steel enterprises,including Baosteel,will face expenditures in three aspects: R&D expenses,capital expenditures and production costs.How can enterprises obtain funds to ensure the smooth transition of carbon reduction? How can other cost savings make up for the additional cost of decarbonization? This is a long-term plan urgently needed by my country’s steel industry.