In December 2015, Susan Chen, an equity analyst, was preparing a valuation of Hong Kong electric utility China Light and Power Holdings (CLP). In Part A of the case, Susan considered ways to incorporate environmental, social and governance (ESG) factors into the equity valuation. She believed that including these factors in the valuation framework could help to identify undervalued shares, in cases where ESG factors had not been fully priced in by the markets. Susan decided to focus on the ESG key performance indicators (KPIs) for the electric utility industry, and assess those that are financially material for the CLP's valuation. As such, she planned to create a "materiality matrix" plotting the size against the likelihood of each KPI's impact on the share price. Part B of this two-part case focuses on the valuation process. It describes ways of incorporating environmental, social, and governance (ESG) into company valuation. At first, Susan would make use of the materiality matrix. Only the KPIs of large size and high likelihood of happening should be integrated into the valuation process.

Part B of this two-part case focuses on the valuation process. It describes ways of incorporating environmental, social, and governance (ESG) into company valuation, and provides forecasted cash flows and a weighted average cost of capital (WACC) for the Hong Kong electric utility China Light and Power Holdings (CLP). The case concludes as Susan was preparing to calculate a base-case valuation, a valuation adjusted for ESG factors, and a sensitivity analysis.

Data Sheet for #ST52A.

Data Sheet for #ST52A.

Data Sheet for #ST52A.