Consideration of the influence of ESG factors on the implementation of investment projects in financial modeling

Abstract

Importance: the article examines the problem of integrating ESG factors (environmental, social, and managerial) into financial modeling of investment projects as a prerequisite for a reliable assessment of their effectiveness and sustainability. It is proved that the traditional modeling technique, focused mainly on financial assumptions, ignores significant non-financial risks affecting the cost of capital and cash flow parameters. Purpose: to develop and systematize methodological approaches to quantifying ESG factors and their inclusion in the structure of the financial model of investment projects. Research design: methods of comparative analysis, synthesis, grouping and generalization, systematization of scientific concepts, modeling are used. Results: it was found that ESG factors have a sustained impact on key financial indicators of investment projects, including revenue, cost structure, CapEx and WACC. Three practical approaches to integrating ESG risks into financial models are proposed: adjusting the forecast forms of financial statements, modifying the discount rate through ERP, iESG and country sustainability indices, and modeling the cost of debt through forecasting the credit spread. It is shown that the proposed solutions increase the accuracy of estimating the created value of an investment project and adapt the models to the requirements of sustainable financing and the “green” agenda in general.