Takafumi Ikuta, Senior Fellow
As interest in ESG (Environmental, Social, Governance) investment has increased in Japan, more and more companies are starting to disclose integrated reports that include financial and non-financial information. When examining the December 2017 constituents of the broad ESG indices for Japanese equities that have been adopted by the Government Pension Investment Fund (GPIF) as an example of external evaluation of corporate value, it can be seen that companies disclosing integrated reports tend to be selected by the ESG indices, but integrated reports are not compulsory for the selection. Furthermore, among the constituents of ESG indices, those that disclose integrated reports are evaluated higher than those that do not, which demonstrates the effectiveness of integrated reporting. However, a closer examination of the constituents of the ESG indices selected by the GPIF, and the disclosure information of the 163 corporations producing integrated reporting, shows that 25% mention their value creation processes by referring to the six types of capital defined by the International Integrated Reporting Framework, and only 8% disclose quantitative information. This means that these companies have not reached the level of creating value by comprehensively evaluating and judging their corporate value.
Quantification of data is desirable if companies are to use corporate value information for disclosure or decision making. As a method of representing comprehensive corporate value in common units, the monetary conversion of non-financial information is attracting attention. Some companies outside Japan are now starting to measure the monetary value of the impact of their corporate activities on society. For example, LafargeHolcim and Argos attempt to calculate the monetary value of the impact of corporate activities from three perspectives – economic, social and environmental. Furthermore, BASF and AkzoNobel include the value chain in their measurement. In addition, Crown Estate is attempting to calculate the monetary value of the six types of capital defined by the International Integrated Reporting Framework.
It is necessary for companies to clarify their objectives and consider the actions corresponding to them, in order to make effective use of corporate value measurement. Publicly available ESG information should be enriched if a company’s objectives include ESG performance and disclosing information to stakeholders. Furthermore, in order to strategically take advantage of corporate value measurement for decision-making, business planning, communication, and so on, it is desirable that companies work towards the quantification of their corporate value, in addition to attempting monetary conversion, as the quantitative evaluation of their contribution to the SDGs will be stressed from now on.
The full version of this report is available in PDF format below. This report is only available in Japanese.
Measuring Corporate Value for Value Creation – From ESG Performance to Strategic Use –