A company's valuedoes not depend solely on its financial performance. Investors, buyers and other stakeholders are increasingly aware of the importance of non-financial criteria, such as links with the ecosystem, employees' quality of life, respect for private versus professional life, and environmental impact, on a company's valuation.
Below is a list of non-financial criteria that can have an impact on a company's valuation, with examples of monitoring indicators and figures to illustrate their impact.
Non-financial criteria and impact on valuation
- Corporate culture: employee satisfaction rate, number of complaints of harassment or discrimination, employee turnover rate.
Impact on company valuation: Companies with high levels of employee satisfaction have a 2.3% higher financial return than companies with low levels of employee satisfaction (Harvard Business Review).
According to a study by the Gallup consulting firm, companies with the most engaged employees can enjoy up to 21% higher net profit growth than companies with the least engaged employees (Gallup).
- Diversity and inclusion: percentage of women and minorities in management positions, turnover rate of minority employees, promotion rate of minority employees, diversity rate within the company, promotion rate of women and minorities, importance of diversity and inclusion training.
Impact on company valuation: companies with more diverse boards have 36% higher returns on investment (McKinsey & Company).
- Human rights: number of complaints of human rights violations, rate of compliance with corporate social responsibility (CSR) standards, rate of respect for workers' rights.
Impact on company valuation: companies with ethical working practices have financial returns that are 4. 4% higher on average (Harvard Business Review).
- Corporate governance: percentage of women on the board of directors, level of transparency of corporate governance, subsidiarity, rate of compliance with ethical standards.
Impact on company valuation: companies with strong corporate governance have financial returns that are 6.5% higher on average (Harvard Business Review).
According to a study conducted by the extra-financial rating agency MSCI, companies with the best corporate governance practices can benefit from a valuation up to 12.5% higher than companies with the weakest practices (MSCI).
- Environmental impacts: energy consumption, greenhouse gas emissions, waste management, greenhouse gas emission reduction rate, waste recycling rate, renewable energy use rate.
Impact on company valuation: companies with sound environmental practices have financial returns that are 5. 6% higher on average (Harvard Business Review).
According to a study by extra-financial rating agency Vigeo Eiris, companies with the best CSR practices can enjoy a competitive advantage anda valuation up to 6% higher than their peers (Vigeo Eiris).
- Social impacts : impact on the local community, impact on employee health and safety, level of involvement in social projects.
Impact on company valuation: companies with sound social practices have financial returns that are 3. 7% higher on average (Harvard Business Review).
- The company 's local economic impact: contribution to local economic development, level of involvement in economic development projects, rate of local job creation.
Impact on company valuation: companies with sound business practices have financial returns that are 4.8% higher on average (Harvard Business Review).
Xval, a company valuation firm, can help you :
Non-financial valuation criteria :
- Occupational health and safety: injury and illness rates, safety compliance rates, absenteeism rates.
Impact on company valuation: companies with strong security practices have financial returns that are 4. 4% higher on average (Harvard Business Review).
- Innovation and research: R&D expenditure rate, number of patents filed, rate of new product or service launches.
Impact on company valuation: companies with innovative practices have financial returns that are 5. 2% higher on average (Harvard Business Review).
According to a study conducted by the extra-financial rating agency RobecoSAM, companies with the best innovation practices can benefit from a valuation up to 17% higher than companies with the weakest practices (RobecoSAM).
- Product and service quality : customer satisfaction rate, customer complaint rate, refund rate, product return rate.
Impact on company valuation: companies with strong product and service quality practices have financial returns that are 4.4% higher on average (Harvard Business Review).
- Risk management : rate of compliance with regulatory standards, rate of insurance coverage, rate of compliance with ethical standards.
Impact on company valuation: companies with sound risk management practices have financial returns that are 3.8% higher on average (Harvard Business Review).
- Supply chain management: rate of compliance with environmental standards, rate of compliance with labor standards, rate of transparency in the supply chain, rate of location close to sourcing.
Impact on company valuation: companies with strong supply chain management practices have financial returns that are 2. 8% higher on average (Harvard Business Review).
- Customer relationship management : customer retention rate, customer recommendation rate, prospect-to-customer conversion rate.
Impact on company valuation: companies with strong CRM practices have financial returns that are 3. 8% higher on average (Harvard Business Review).
- Reputation management: brand awareness, positive reputation on social networks, stakeholder satisfaction.
Impact on company valuation: companies with a positive reputation have financial returns that are 3.3% higher on average (Harvard Business Review).
According to a study by strategy consultancy Reputation Institute, a 5-point improvement in corporate reputation on a scale of 100 can lead to a 1.3% increase in company value (Reputation Institute).
- Data management : rate of compliance with data protection standards, rate of respect for user privacy, rate of data security.
Impact on company valuation: companies with strong data management practices have financial returns that are 2. 9% higher on average (Harvard Business Review).
- Intellectual property management : patent filing rate, rate of compliance with intellectual property rights, rate of compliance with ethical standards.
Impact on company valuation: companies with strong IP management practices have financial returns that are 2. 7% higher on average (Harvard Business Review).
- Supplier relations management: transparency of supplier relations, compliance with labor standards, rate of compliance with environmental standards.
Impact on company valuation: companies with strong supplier relationship management practices have financial returns that are 1. 7% higher on average (Harvard Business Review).
According to a study conducted by the Corporate Executive Board research group, companies with the highest ethical standards can enjoy up to 14% higher net profit growth than those with the lowest standards (Corporate Executive Board).
- Social responsibility management: rate of participation in social initiatives, rate of respect for human rights, rate of contribution to social causes.
Impact on company valuation: companies with strong social responsibility practices have financial returns that are 2.8% higher on average (Harvard Business Review).
A significant impact on company valuations
In short, it's important to emphasize that non-financial criteria can have a significant impact on a company's valuation. Investors are increasingly aware of these factors, and take into account not only a company's financial performance, but also its ability to manage non-financial factors such as diversity, innovation, environmental impact and social responsibility.
Thus, by investing in or acquiring companies with solid practices in these areas, investors can contribute to the creation of a more sustainable and responsible economy, while achieving high financial returns over the long term. Companies, for their part, have every interest in integrating these criteria into their management strategy to maintain their competitive edge and maximize their long-term value.
If you would like to increase the value of your company, the XVAL experts can help you:
Links to studies cited
Harvard Business Review: https://hbr.org/
Study conducted by extra-financial rating agency Vigeo Eiris on the impact of CSR on company valuations: https: //www.vigeo-eiris.com/research/esg-improvement-results-in-financial-outperformance-in-europe/
Study by strategy consultancy Reputation Institute on the impact of reputation on company valuation: https: //www.reputationinstitute.com/reputation-insights/reputation-and-the-bottom-line
Study carried out by the extra-financial rating agency MSCI on the impact of corporate governance on company valuations: https: //www.msci.com/www/blog-posts/governance-matters-for-equity/01661758284
Corporate Executive Board research group study on the impact of business ethics on corporate net income growth: https: //www.gartner.com/en/human-resources/insights/employee-engagement/ethics-and-compliance-drive-business-performance
Gallup consulting firm study on the impact of employee engagement on corporate net income growth: https: //www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx
Study conducted by the extra-financial rating agency RobecoSAM on the impact of innovation on company valuations: https: //www.robecosam.com/media-center/news/2017/05/robecosam-releases-annual-sustainability-yearbook-2017-recognizes-worlds-sustainable-leaders-and-trends-for-sustainability-investment.html
