Fully Integrated SRI Financial Analysis


Since every management decision impacts at least one ethical or sustainability criterion and by that impacts at least one value driver, the positive influence sooner or later will be measurable in the company's financials. Seizing opportunities e.g. means that more profitable investments can be detected and made. Which in turn leads to an increase in free cash flow. Managing risks in a sustainable way on the other hand decreases production costs or lowers the company's need for reserves or its risk premium for financing.

Corporate governance e.g. is linked to the risk premium a company has to pay on equity or debt. Best practices in corporate governance are be assumed to reduce the level of misalignment between shareholder interests and interests of management, thus reducing the risk of misappropriation of funds. Best practices in occupational health and safety may be assumed to reduce costs by reducing staff turnover, insurance premiums or perhaps litigation claims. Best practices in human capital management are linked to revenues, cost efficiency, or reinvestment rates due to increasing the level of innovation.

These few examples may demonstrate that management decisions regarding corporate ethics may impact shareholder value via its components. Therefore, it should be worth to integrate more 'soft facts' translated into 'hard factors' into the companies' external financial analysis as well.