How Do ESG Activities Impact Corporate Value? Analysis from Big Data: The "Non-Financial Value Survey"

ESG (Environmental, Social, and Governance) perspectives are now indispensable in corporate management. However, many companies likely still lack a full grasp of how ESG activities actually impact their corporate value.

In June this year, Dentsu Inc., Dentsu International Information Services (ISID), and ITID launched the "Non-Financial Value Survey." This service analyzes the impact of "non-financial activities"—such as ESG initiatives and corporate image building—on corporate value using big data including financial data, ESG evaluation data, and image data.

In this article, we spoke with Dentsu Inc.'s Miho Uenishi and Jun Kanie, and ISID's Fumiichi Matsuyama, who were involved in developing the service, about the uniqueness of the Non-Financial Value Survey and the insights revealed by its analysis.

※This article is re-edited based on content originally published in Transformation SHOWCASE.

 

 

Analyzing the Impact of Non-Financial Activities on Corporate Value

──In recent years, attention has grown toward corporate non-financial activities, including ESG initiatives. What kind of service is the "Non-Financial Value Survey," launched this June, and what led to its creation?

Uenishi: The "Non-Financial Value Survey" is a service that logically analyzes and visualizes how specific ESG activities impact a company's financial health and job applicant preferences, and what kind of image influences corporate value. It does this by combining three types of big data: financial data, ESG evaluation data, and image data. A key point unique to Dentsu Inc. is that it analyzes not only financial and ESG evaluations but also incorporates corporate image.

I joined this project after reading an article about ISID beginning research on the relationship between ESG activities and finance. I thought that combining this with corporate reputation and image data could highlight the Dentsu Group's unique strengths and potentially create an interesting service. That's why I contacted Mr. Matsuyama, who was interviewed in the article.

Matsuyama: I work in ISID's open innovation department, primarily focused on research and development. Initially, we were studying the relationship between ESG activities and financial performance. When I shared this work with Mr. Uenishi at Dentsu Inc., we discussed how it could be interesting to analyze the impact of ESG activities on employment intentions and incorporate corporate image into the analysis.

Indeed, when considering where to work, we don't choose based on "good PBR (price-to-book ratio)"; we pick companies because of their image, thinking "I want to work for this company." Furthermore, for B2C companies, sustainability activities linked to product image make it easier for consumers to choose them. So, we advanced our research and development to visualize the relationship between non-financial activities and corporate image.

Kanie: I'm a member of ITID and currently seconded to Dentsu Inc.'s Sustainability Consulting Office. ITID specializes in consulting for manufacturing, but through our business development, we realized the consulting methodologies used for manufacturing R&D departments could be widely applied across other industries and contribute to creating value for society as a whole. Consequently, we now provide consulting across a broad range of industries and domains. I had been paying close attention to ESG as a theme I believed would become extremely important for future corporate management. Upon learning about the work Mr. Matsuyama at ISID was undertaking, I consulted with him and we began our research together. Drawing on that experience, I was seconded to Dentsu Inc. to engage in initiatives connecting sustainability to corporate growth.

Jun Kanie, Senior Consultant , Sustainability Consulting Office , Dentsu Inc. Possesses extensive experience in strategy formulation and operational transformation/BPR (Business Process Reengineering) across diverse industries including manufacturing, publishing, and restaurant chains. Simultaneously, he is broadly involved in solving issues related to people and organizations, such as talent management and organizational revitalization. He transforms businesses by focusing on both value creation processes and people/organizations, supporting clients in enhancing their value delivery capabilities. In recent years, he has intensified efforts in ESG management and local government support, strengthening initiatives on themes such as carbon neutrality, disclosure of non-financial capital information, and digital transformation (DX) for regional companies. In January 2023, he was seconded from ITID to join Dentsu Inc.'s Sustainability Consulting Office.

Supporting Companies with Survey Reports and Workshops

──What do companies gain through this service? Do they understand the evaluation of their current non-financial activities? Or do they gain insight into the ESG themes they should focus on going forward?

Kanie: Both.

First, regarding the ESG activities companies are currently undertaking, they can understand two key points: how stakeholders evaluate these activities and how they compare to competitors.

Regarding identifying themes to focus on going forward, our analysis is based on what ESG activities companies that have increased job applicant interest or consumer purchasing intent over the past three years have engaged in, or what kind of corporate image they have enhanced.

For example, if certain ESG activities have become trends over the past three years, we present hypotheses to companies whose efforts in these areas are still insufficient, suggesting, "If you pursue ESG activities on these themes, you could see results going forward." Conversely, for companies with advanced initiatives, we identify areas where no one has yet ventured and present new possibilities.

For companies seeking to challenge themselves with unprecedented initiatives based on their current status, Dentsu Inc. Sustainability Consulting Office offers distinct solutions. We help them conceive novel approaches and broaden their scope of activities by presenting 25 themes likely to become critical by 2030 for problem-solving, preparing sustainability roadmaps, and suggesting industry-specific sustainable events.

Uenishi: For companies that adopt the "Non-Financial Value Survey," we also conduct workshops tailored to their situation. Based on the analysis results, we plot the company's current state on a chart. Considering the market and competitor landscape, we then discuss and explore what activities they should undertake. This combination of a standardized survey report and workshops forms our support mechanism for companies.

──I understand the Non-Financial Value Survey allows stakeholder-specific analysis. Who exactly are these stakeholders?

Kanie: It refers to three groups: investors, job seekers, and consumers/end-users. We can clearly illustrate the flow: how specific ESG activities enhance corporate image, improve stakeholder evaluations, and ultimately lead to better financial performance.

Previously, we had eras of customer supremacy and shareholder capitalism, where management focused intensely on specific stakeholders. Moving forward, however, to advance business sustainably, it's crucial to enhance evaluations from a wide range of stakeholders. We hope the "Non-Financial Value Survey" can be utilized to realize stakeholder capitalism.

Addressing the Challenges Companies Face in ESG Activities

──You work closely with companies daily. How do you perceive the challenges companies face in their ESG activities?

Uenishi: I took parental leave starting in 2020, and around that time, I noticed a significant shift in corporate awareness toward purpose-driven management and ESG management. Since returning from leave, I've clearly seen an increase in the number of consultations regarding ESG management. However, many companies seem to approach it primarily out of a sense of obligation, thinking "we have to do this," and consequently, many are struggling because they don't know what exactly to do. It was precisely this real-world insight that led to the development of this service.

Miho Uenishi, Senior Solution Planner, Third Integrated Solutions Bureau, Dentsu Inc. After joining Dentsu Inc., she worked in sales for major electronics, housing, and food manufacturers, retailers, and startups. Since 2016, she has worked as a Strategic Planner. She has developed brand strategies and communication strategies for multiple clients in food & beverage and cosmetics, and has also been involved in product development and sustainability consulting. Dentsu Inc. Team SDGs Consultant

Kanie: At ITID, we consult with a wide range of companies, and sustainability has increasingly become a key theme. At the same time, I feel there is a significant gap in awareness between companies. Some companies view sustainability promotion and ESG activities as a given, with no obstacles to their implementation. Others have sustainability-related departments, but lack sufficient understanding from surrounding teams, preventing it from becoming central to their business. We are increasingly speaking with companies at both these extremes.

Companies lagging in ESG activities face a heightened risk of increasingly challenging management going forward. For such companies, I recommend undergoing a "Non-Financial Value Survey" diagnosis to clearly understand their current position. The analysis results can provide hints about the direction they should take next, and I hope this becomes a catalyst for advancing their sustainability efforts.

──What types of consultations are most common at present? Also, what kind of companies facing challenges do you hope will utilize this service?

Uenishi: Ideally, we want to address the concerns of companies that are already engaged in various ESG activities but are unsure which areas to prioritize or focus their efforts on. While Japanese companies have increasingly emphasized creating non-financial value in recent years, many are still feeling their way forward, unsure exactly what initiatives to pursue. We believe this service is well-suited for such companies.

Kanie: Management methodologies for financial operations are fairly well-established. However, the optimal approach for managing non-financial business areas remains unclear. Managing sustainable business requires careful attention to the evaluations of diverse stakeholders. We hope this service will help companies effectively understand these broad stakeholder perspectives.

Matsuyama: For some companies, even after data analysis identifies key ESG themes to focus on, implementation can be difficult. In such cases, we sometimes break down the challenges like factoring a problem, exploring pathways to achieve them. Since this is an area where data analysis alone often falls short, I feel it's crucial to engage in repeated dialogue with the company.

Economic value is born only when social value is enhanced

──How do you envision developing this service going forward?

Matsuyama: While I primarily handle data analysis, I recognize that each company faces distinct challenges. Moving forward, I aim to identify common elements and solidify the "Non-Financial Value Survey" into a robust package. I hope to effectively utilize the data analysis results, increase the areas where data analysis and consulting can be self-contained, and connect this to workshops.

Hirokazu Matsuyama, Senior Consultant, Open Innovation Lab, Technology & Innovation Unit, X (Cross) Innovation Division, Dentsu Inc. International Information Services (ISID). Began his career as an economist and statistician at academic research institutions in Japan and abroad, assuming his current role in 2018. Utilizing economics and data analysis skills, he engages in R&D to solve societal challenges. Recently, he has been interested in understanding the relationship between non-financial and financial data, as well as mathematical optimization using quantum computers, spending his days immersed in a sea of data and code.

Kanie: We aim to position this service as an entry-point solution for companies to embed ESG management. How can companies consolidate ESG activities being pursued by individual departments on separate themes and leverage them for decision-making? Or, how can they establish a continuous improvement process? We hope the data analysis from the "Non-Financial Value Survey" can serve as the foundational mechanism for implementing this.

Uenishi: When I joined Dentsu Inc., there was already a movement aiming to balance corporate social value and economic value, with CSR activities flourishing. However, I also witnessed how the Lehman Shock caused such activities to rapidly decline. Having always been interested in this field, I questioned whether that was truly the right approach. Fundamentally, companies should enhance their social value to generate economic value.

By using the "Non-Financial Value Survey" to demonstrate the impact of non-financial activities with data, I hope it can serve as a driving force for companies to pursue the dual goals of social and economic value not just as an ideal, but with a sense of conviction. Going forward, I aim to develop this into a service that can be adopted by more companies.

On January 1, 2024, Dentsu International Information Services (ISID) and ITID will merge and change their company name to DENTSU SOKEN INC.