86  Valuation of ESG and Digital Initiatives reduction in downside risk, as evidenced, among other ways, by lower loan and credit default swap spreads and higher credit ratings.5 In a 2019 McKinsey survey of 558 executives from around the globe and in different industries, 57 percent said they believe that ESG programs create shareholder value.6 While nearly all of the 57 percent said these programs create long-term value, two-thirds of them also reported that such programs create value in the short term. Among the major benefits driving value cre- ation, according to respondents, are maintaining a good reputation and brand equity, attracting and maintaining talented employees, and strengthening the company’s competitive position. Respondents across the spectrum also said they would be willing to pay a 10 percent premium for a company with a posi- tive ESG record versus one with a negative record. These favorable opinions do not mean that a company should undertake every ESG idea that comes along. Consistent with valuation principles, our point is that companies should take ESG considerations into account when they make important decisions and that companies should actively look for opportunities to invest in projects that have ESG benefits. Those who look actively may find more positive present value opportunities than they had expected. Where can they look for a strong ESG proposition that makes finan- cial sense? ESG may link to cash flow in five important ways: (1) facilitating revenue growth, (2) reducing costs, (3) minimizing regulatory and legal inter- ventions, (4) increasing employee productivity, and (5) optimizing investment and capital expenditures. Revenue Growth A strong ESG proposition helps companies tap new markets and expand in existing ones. When governing authorities trust corporate actors, they are more likely to award them the access, approvals, and licenses that afford fresh 5 See, for example, S. A. Lundqvist and A. Vilhelmsson, “Enterprise Risk Management and Default Risk: Evidence from the Banking Industry,” Journal of Risk and Insurance 85, no. 1 (March 2018), https:// onlinelibrary.wiley.com; E. Landry, M. Lazaro, and A. Lee, “Connecting ESG and Corporate Bond Per- formance,” MIT Management Sloan School and Breckinridge Capital Advisors, 2017, mitsloan.mit.edu; and M. Reznick and M. Viehs, “Pricing ESG Risk in Credit Markets,” Hermes Credit and Hermes EOS, 2017, hermes-investment.com. Similar benefits are found in yield spreads attached to loans; see A. Goss and G. S. Roberts, “The Impact of Corporate Social Responsibility on the Cost of Bank Loans,” Journal of Banking and Finance 35, no. 7 (2011): 1794–1810, sciencedirect.com; S. Chava, “Environmental Externalities and Cost of Capital,” Management Science 60, no. 9 (September 2014): 2111–2380; S. C. Bae, K. Chang, and H.-C. Yi, “The Impact of Corporate Social Responsibility Activities on Corporate Financ- ing: A Case of Bank Loan Covenants,” Applied Economics Letters 23, no. 17 (2016): 1234–1237; and S. C. Bae, K. Chang, H.-C. Yi, “Corporate Social Responsibility, Credit Rating, and Private Debt Contracting: New Evidence from Syndicated Loan Market,” Review of Quantitative Finance and Accounting 50, no. 1 (2018): 261–299. 6 See L. Delevingne, A. Gründler, S. Kane, and T. Koller, “The ESG Premium: New Perspectives on Value and Performance,” McKinsey on Finance 73 (January 2020), www.mckinsey.com.