To quantify return potential for an individual stock, we identify five value drivers: revenue growth, margin development, invested capital needed, competitive advantage period and risk (as defined by a discount factor). To assess the fair value of a stock, these five factors are estimated and applied in our valuation tools
Quantifying the impact of ESG factors on companies' valuation takes place in three steps. The first step is to identify the most material issues - i.e. those ESG issues that may substantially affect the company's business model and value drivers - either positively or negatively and identifying red flags. The second step is to analyze the impact of these material factors and red flags on the individual company. These first two steps are done in close collaboration between the RobecoSAM SI Research analyst and the Robeco fundamental equity analyst. In the third and last step, the Robeco fundamental equity analyst estimates the impact of the ESG factors and the associated competitive advantages and disadvantages to the five value drivers (see above) of the company.
Our factor model incorporates CO2 emissions to decarbonize the value factor and company assessed SAM ESG scores in the quality factor.