ESG considerations are becoming integral to due diligence, with more firms set to fall under CSRD and CSDDD in the coming years. While the recent EU Omnibus proposals may have slowed momentum, the broader trend remains clear: companies are now expected not just to disclose ESG metrics but to act on them.
Private markets are responding, as demonstrated by the private equity-led EDCI framework, which acknowledges both the importance of ESG data and the necessity of action. Under the CSDDD, financial firms are exempt from downstream reporting, meaning they are only required to report on their upstream activities.
Why does this matter? Firms that voluntarily address this data gap can gain a competitive advantage, building trust and attracting ESG-conscious investors. Conversely, failing to track downstream ESG risks could create blind spots in risk management, exposing firms to unforeseen liabilities.
This evolving regulatory landscape has triggered a debate: some argue ESG compliance stifles competitiveness, while others see regulatory consistency as essential for long-term planning. However, ESG data should be seen not as a burden but as business intelligence: a tool for strategic decision-making and value creation. As firms navigate the transition to a net-zero economy, those failing to integrate ESG data risk falling behind.
Here, we explore three key examples of how ESG data directly influences valuation and enhances competitive positioning.
Evaluating Climate Risk on Real Assets
Climate risk is increasingly factored into valuation models, particularly for real assets. In 2024, Zillow introduced a climate risk score for homebuyers, enabling them to assess long-term exposure to floods, wildfires, and extreme heat. Similarly, CoreLogic has integrated climate risk modeling to help financial institutions quantify potential property losses.
Extreme weather events impact economic valuations, as seen in the Pacific timberland market, where climate-induced risks have reduced asset values by an estimated 10% (Wang & Lewis 2023). Likewise, the case of PG&E highlights how failing to account for environmental risks can be catastrophic—its equipment's role in the 2018 Camp Fire led to a 91% share price decline and billions in liabilities.
Why It Matters for Valuation
Companies that proactively integrate climate risk data can reduce liabilities and enhance investor confidence. For instance, carbon offset markets—designed to mitigate emissions—face physical climate risks that could undermine both environmental and financial objectives. Without ESG data, investors may overlook critical vulnerabilities.
Employer Turnover Costs
Employee retention is a key financial consideration, with turnover costs averaging 21% of an employee’s annual salary (US Department of Labor, 2015). Studies show that higher employee turnover negatively affects company value (Garsaa, 2024), and meta-analyses confirm a direct correlation between high turnover and poor organizational performance (Park & Shaw, 2013).
A crucial EDCI-recommended data point is employee survey completion rates, which offer insights into workplace satisfaction and engagement. Research from BCG (2024) found that firms with higher survey completion rates experienced lower turnover, helping them retain experience, reduce costs, and boost productivity.
Why It Matters for Valuation
Employee retention directly impacts financial performance. Firms that leverage governance data to track turnover drivers can implement targeted interventions, preserving value while ensuring long-term stability—a key factor for investors looking to optimize returns.
Board Gender Diversity and Series X Raise Values
Board diversity is increasingly correlated with higher valuations during fundraising rounds. McKinsey (2012) found that firms in the top quartile for board gender diversity were 27% more likely to outperform on profitability, while global studies suggest that female leadership may enhance firm performance (Noland, Moran & Kotschwar, 2016).
There is also evidence that diverse boards improve corporate social responsibility (CSR), driving stronger stakeholder engagement and, ultimately, better financial results (Galbreath, 2018). Additionally, research indicates that firms publishing a sustainability report before an IPO experience less underpricing (Ferri et al., 2023).
Why It Matters for Valuation
Investors see gender-diverse boards as a marker of strong governance, risk management, and strategic foresight. Firms demonstrating robust ESG integration—including diversity considerations—are better positioned for higher valuations at critical fundraising stages.
Conclusion: ESG Data as a Competitive Advantage
The evidence is clear: ESG data isn’t just about compliance—it’s about competitive intelligence. Firms that integrate climate risk analysis, employee retention strategies, and governance data into their decision-making process create tangible value for investors and stakeholders alike.
While some still frame ESG as a burden, the reality is that long-term investors—including those managing $1.5tn in assets (FT, 2025)—are demanding proactive engagement on ESG issues. Managers who fail to adapt risk divestment, reputational damage, and financial underperformance.
As we move into an era defined by turbulence, uncertainty, novelty, and ambiguity (TUNA, University of Oxford, 2022), ESG data is no longer optional—it is a strategic necessity. Investors that recognize this shift will not only protect their portfolios but unlock new growth opportunities in a rapidly evolving market.
The key takeaway? ESG data isn’t just an obligation - it’s an opportunity.