Social factors (e.g., labor rights, workplace safety, data privacy) affect a company’s risk profile and, consequently, its valuation.

Why A (Raise the discount rate) is correct:

Poor social risk management increases business uncertainty, leading analysts to raise the discount rate to reflect higher risk.

Higher discount rates reduce the present value of future cash flows, lowering a company’s valuation.

Why not B or C?

B (Lowering the discount rate) is incorrect—investors lower discount rates for lower-risk companies.

C (Impact adjustments) may be part of ESG modeling but does not directly replace discount rate adjustments.