Branding is an important factor in business valuation, but there is no single definition of a “brand.” Most of us have a vague understanding that it is something more than just a company’s logo or advertising campaign. A brand is primarily measured by perception. So one possible definition is that a brand is everything we know (or think we know) about a company and a collection of a company’s people, ideas and behaviors.
Brands play an important role in creating value for investors.
However you define a brand, it is a part of the intangible assets. If you substract the book value from the market value of a company, you quickly find that intangibles often account for more than 85 percent of the company’s value. So it pays off to carefully build the value of a brand.
Deliver a strong brand for investors.
Companies build and protect their brands, to build an “economic parachute” that allows them to recover more quickly from an economic downturn. Companies with strong brands are also less volatile than their competitors. This is a significant advantage for investors who want to avoid risk.
Not really coincidentally, strong brands also tend to have high environmental, social and governance (ESG) scores. In this way, strong brands offer investors a good opportunity to align their values with their investment strategy.
How is a brand’s contribution and impact measured?
Although intangible assets are not “in the books,” academics and researchers have tracked changes in brand strength in one way or another for decades. Beginning in the late 1980s, many marketing consultancies developed basic performance metrics to track key brand metrics for new clients. The idea was to demonstrate the value of marketing to a company by measuring and evaluating brand strength.
Why do strong brands have good ESG scores?
Strong environmental, social and governance ratings add credibility to brand building, as investors’ interest in ESG is at an all-time high. Although there is no standardized ESG assessment methodology, many research firms have created ways to understand which companies are outperforming their corporate benchmarks while remaining committed to their ESG values.
Brands need to be good corporate citizens. Customers and investors expect management to be environmentally responsible, treat employees fairly, and behave ethically.
At the bottom line.
Although there are no standardized measurement methods for brand strength and ESG scores, they are important indicators of a company’s strength. By considering these ESG metrics, investors can better value companies’ future value, especially as intangible assets continue to play a very large role in company valuation.
How can we support you?
Sustainable business models and responsible entrepreneurship is our passion. We are happy to share our experience and knowledge with you and look forward to working with you to develop and implement an ESG strategy – for you and all your stakeholders.