A PESTEL analysis is a framework for looking at the outside forces that affect a business: Political, Economic, Social, Technological, Environmental and Legal. PESTLE analysis is the same thing with the letters in a different order.
CFI describes PESTEL as a strategic framework commonly used to evaluate the business environment a firm operates in. It started life as PEST (Political, Economic, Social, Technological) and was later extended to include Environmental and Legal factors. Whether you call it PESTEL or PESTLE, you're looking at the six forces outside your control that could help or hurt you.
Who uses PESTEL and why
CFI says management teams and boards use it in strategic planning and enterprise risk management, and that it's popular with management consultants and financial analysts. The output doesn't sit on its own, either. CFI says the key points can feed other frameworks such as Ansoff's matrix, Porter's five forces and SWOT analysis. If SWOT is your next step, this free SWOT analysis template picks up where PESTEL stops.
The six PESTEL factors with examples
| Factor | What it covers | CFI's example |
|---|---|---|
| Political | Government policy, trade disputes, antitrust | A multinational relocates to a lower-tax jurisdiction |
| Economic | The cycle, interest rates, inflation | An analyst changes the discount rate in a valuation model |
| Social | How people live, work and spend leisure time | Hybrid work reshapes hiring and onboarding |
| Technological | R&D and disruption | A move from on-site servers to the cloud |
| Environmental | Climate and the physical environment, overlaps with ESG | Tracking emissions after mandatory disclosure |
| Legal | Regulation and IP protection | Capital rules as a headwind, heavy regulation as a moat |
Political
Political factors come from government actions and policies. CFI makes the point that even the threat of trade disputes or antitrust action can create material risks and opportunities. Its example is a multinational that closes facilities in a higher-tax jurisdiction and moves somewhere with lower tax rates or better state funding and grants.
Economic
Economic factors relate to the wider economy and are expressly financial. In CFI's example, an equity analyst may change the discount rate in a model depending on the economic cycle and Treasury yields, which can materially change a valuation.
Social
Social factors are shifts in how people approach life and leisure. CFI says they're harder to quantify than economic ones but can have an outsized impact on whole industries, and it points to healthier, more active lifestyles driving connected fitness. Its example: after the pandemic, a technology firm has to rethink hiring, onboarding and training because many employees prefer hybrid or work-from-home.
Technological
Technological factors cover how R&D affects costs and competitive advantage, plus the speed and scale of disruption. CFI cites Uber upending transportation and e-commerce changing retail. Its example is a management team weighing the practical and financial effects of moving from on-site physical servers to cloud-based data storage.
Environmental
CFI calls Environmental a sensible addition to PEST, as businesses recognised that changes to the physical environment, including climate change, create risks and opportunities. It says this factor overlaps considerably with ESG analysis. Its example is a listed firm that has to upgrade its record keeping to track greenhouse gas emissions after a stock exchange announces mandatory climate and ESG disclosure.
Legal
Legal factors are changes to regulation that affect the economy, an industry or a business. CFI's useful twist is that regulation can work either way. Higher capital requirements for financial institutions are a headwind. Heavy regulation of food production can be a tailwind, acting as a protective moat for established operators. CFI also mentions the risk of IP theft where legal infrastructure is weak.
The catch: the factor you can't measure is often the one that matters
CFI says many financial-services analysts tend to overweight Economic factors because they're easier to quantify and model than the others. Meanwhile, Social factors are harder to measure yet can reshape entire industries. So a PESTEL that leans on the numbers you already have can miss the shift that hurts you most.
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CFI's answer is to try to put numbers on all six. Its examples:
- Adjust revenue growth and gross margin assumptions for inflation expectations.
- Project a cash reserve if poor carbon management could bring fines or a carbon tax.
- Add a higher interest-rate buffer when stress-testing debt service coverage.
- Cut labour-cost assumptions where automation is expected to reduce labour costs, which changes free cash flow estimates.
How to do a PESTEL analysis in five steps
- Decide what you're analysing: a company, a product or a market.
- Brainstorm factors under each of the six headings.
- Mark each one as a risk or an opportunity.
- Quantify the ones that move your numbers, using CFI's examples above as a guide.
- Feed the results into SWOT, Ansoff or your plan.
Step two goes faster with research behind it, and this piece on why market research matters explains where to start.
Where I come in
I help SaaS marketing teams and small businesses turn a PESTEL into a plan: which outside shifts change who buys, what they'll pay attention to and where the marketing effort should go next. You can see how I work on my work with me page.
The verdict on PESTEL
Do it in an hour, keep it to one page, then pick the two factors that could hurt or help you most in the next 12 months. A PESTEL with dozens of bullets is a poster, not a decision. And don't skip the Social row just because it's hard to put a number on. CFI's point is that it's the one most likely to catch you out.
Frequently asked questions
What does PESTEL stand for?
Political, Economic, Social, Technological, Environmental and Legal. CFI says it began as PEST and was extended with Environmental and Legal factors.
Is PESTLE the same as PESTEL?
Yes. PESTLE and PESTEL cover the same six factors; only the order of the letters changes.
Who uses a PESTEL analysis?
CFI says management teams and boards use it in strategic planning and enterprise risk management, and it's popular with management consultants and financial analysts.
What comes after a PESTEL analysis?
CFI says its key points can feed other frameworks such as SWOT analysis, Porter's five forces and Ansoff's matrix.
