Environmental, social and governance factors and assessing firm value: valuation, signalling and stakeholder perspectives

Research continues to uncover gaps in shareholders' consideration of environmental, social and governance (ESG) factors in investment decision‐making. With no one theory able to explain this process, this paper offers three inter‐related perspectives. First, from a valuation viewpoint, it is not clear how ESG factors are incorporated into earnings forecasts. Second, referencing agency and signalling theories, ESG may reduce information asymmetry between management–agents and shareholder–principals. Third, stakeholder and institutional theories situate ESG in a complex multi‐actor, multi‐interest, environment. Further research may reveal the conditions under which ESG information provides signals that augment shareholder assessment of long‐term firm value.