When ESG Helps—and When It Hurts—Private Business Value

Environmental, Social, and Governance (ESG) practices have gained significant momentum in corporate strategy conversations—but for privately-held businesses, the question remains: will ESG increase or decrease my company’s value?

As valuation professionals, we’ve modeled both outcomes. The answer, like most things in business, is: it depends.

When ESG Helps

ESG creates value when it drives either higher revenues or lower perceived risk—ideally both.

• Revenue Uplift: Brands that align with ESG values can attract premium pricing, build customer loyalty, and access new market segments. In our valuation models, companies assuming above-average revenue growth due to ESG saw equity values increase by more than 8%.

• Risk Reduction: Strong ESG practices can decrease company-specific risk by improving regulatory compliance, enhancing governance, and reducing reputational volatility. A lower discount rate applied to cash flows produces higher valuations—especially in discounted cash flow (DCF) analyses.

This scenario assumes ESG is executed thoughtfully and integrated authentically into operations, not just marketing materials.

When ESG Hurts

ESG can reduce business value when it increases expenses without improving revenues—or introduces operational risks.

• Expense Overload: Many ESG initiatives require upfront investment—higher wages, ethical sourcing, administrative staffing, compliance costs. If these expenses aren't offset by growth or savings, net cash flows decline.

• Increased Risk: ESG done poorly can trigger regulatory missteps, internal strain, or allegations of greenwashing. These factors raise the company-specific risk premium, leading to higher discount rates and lower valuations.

  
  

In our modeling, an unsuccessful ESG rollout (higher costs, stagnant growth, higher perceived risk) decreased valuation by over 50%.

What This Means for Business Owners

The valuation impact of ESG is real—but not automatic. Success hinges on alignment: between ESG strategy, operational capacity, customer values, and financial modeling.

Before launching new initiatives, ask:

• Will this increase long-term revenue?

• Are we prepared to absorb the cost?

• How will this affect our perceived risk profile?

  
  

If you can answer “yes” to the first two—and lower the third—you’re likely headed in the right direction.