Challenge: Linking Sustainability & Financial Value. Companies struggle to evaluate the financial value of their sustainability initiatives. In the past, sustainability has been “ the right thing to do ” with implicit trust that it will bring value.
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Indirect value (protection) refers to the indirect risk mitigation potential of sustainability investments.
Direct value (creation) results from the direct cost-benefit of the sustainability investments.
- e.g., investments in social cohesion, reputation, cultural heritage, etc.
Scenario B : user defined, most often a greater investment than scenario A e.g. proposed sustainability portfolio
Scenario A: user defined, e.g. business as usual, or base case
Estimated NPV ranges of the sustainability investmentsvs. base case
Defining Risk Reduction Potential:
To determine risk reduction potential, the FV Tool subtracts macro-level risks (country risks) as assessed by the Multilateral Investment Guarantee Agency (MIGA, political risk insurer part of World Bank Group) and prompts the user to consider industry specific risks using sector level data provided by Independent Project Analysis (IPA, owner of 25+ year database on extractives) to determine the potential volume of risk a sustainability investment portfolio can manage.
IPA Capital Project Data – 734 Observations
Business Benefit :
Value in Billions
Dashboard - Total Sustainability Value Added
For $2billion CAPEX project, sustainability investments can return as much as $187 million of NPV.
Initiatives Relative Share on Value Protection