A lower terminal growth rate due to ESG risks (Option A) results in:
A lower valuation in a discounted cash flow (DCF) model.
Higher expected regulatory costs, operational risks, or reputational issues reducing future cash flows.
Option B (Same valuation) is incorrect because ESG risks impact long-term growth assumptions.
Option C (Higher valuation) is incorrect—ESG risks increase discount rates, lowering present value.
[References:, MSCI ESG & Valuation Impact Study, CFA ESG Integration in Financial Modeling, PRI Guide to ESG Risk in Valuations, , , , , ]
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