How does CSR influence the market value of your company?

In practice, the role of CSR in assessing the market value of a company is still small or non-existent, as a result of which a potentially strong impetus to encourage CSR remains untapped! The Ministry of Economic Affairs, Agriculture and Innovation provided financial means to study ways to discount CSR in the goodwill in the valuation of enterprises. This may be an important new impetus for enterprises to get going with CSR. In this project, CREM develops the methodology in close cooperation with BOBB (Branch Organization of Mediators in Corporate Transfers) and the Rotterdam School of Management. In this initiative CSR The Netherlands is responsible for project management and together with CREM and BOBB it engages in various communication-activities, including a training for mediators in takeovers.

Goodwill

In the Netherlands there are between 10,000 and 15,000 larger and smaller takeovers annually. Generally, to assess the value of a company, valuation methods such as the ‘capitalized value method’ and ‘Discounted Cash Flow Analysis’ are applied. These methods are partly based on expected future financial results. Goodwill plays an important role in assessing this future value. This goodwill represents the value of all kinds of aspects that enable the company to operate successfully in the future. It is not about direct financial affairs which are already on the balance sheet, but for example about knowledge, image, customer loyalty, innovation potential, access to funding resources, staff loyalty, relation with suppliers, etc. In economic terms these kinds of ‘soft assets’ are translated into goodwill. In the framework of takeovers, goodwill is assessed among other things through a due diligence assessment.

Grounds in common with CSR

Various elements of goodwill have grounds in common with CSR. If enterprises are paying attention to issues such as environment, working conditions, human rights, ‘fair’ trade, good governance and transparency, it enhances the corporate image/the brand loyalty. It also reduces corporate risks (including legal liability), it provides an opportunity to tap new (niche) markets and it increases access to funding resources (for example grants). CSR can therefore be both an opportunity and a threat for enterprises, and should consequently be a crucial factor for assessing the value of a company in case of a takeover.

• Contact: Victor de Lange >>

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