Is finance too low-tech to support sustainability innovations?

In the october edition of Renewable and Sustainable Energy Reviews, Christensen et al. (2018) conclude that they were surprised about the low-tech financial decision rules that are being applied to green office investments.

Money

Financial decisions to pursue energy efficiency projects in the research study appear to be primarily the result of simple financial analysis such as: positive cost-benefit analysis calculations, payback period assessment, and/or estimated return on investment (ROI) for the implementation. 

Proposed are more sophisticated financial decision making approaches such as discounted cash flow modeling.

Using discounted cash flow modeling can be a more sophisticated way of financially understanding  sustainable investments in my opinion, however these models do emphasize that short term return is more valueable than long term return. Simple measures often indicate very early if a sustainable investment is financially viable or not.

Discounted cash flow modelling can be really worthwhile when risk is included the financial analysis. Not only analyzing the sustainable investment project but also the alternative (often the base case or traditional case) where sustainability is not implemented.

IRRThe advantage of such an approach is that more integrated knowledge needs to be implemented in the financial models. Knowledge from financial experts, technological experts and other stakeholders. This gives a more integrated approach to expected financial return in relation to risk and sustainability.

My conclusion is that low-tech finance will not endure in a society where there is a definite urge for more sustainability. High-tech finance probably is not the answer, because money is not the only parameter as sometimes financial experts think and are motivated. Integrated finance will lead to better investment decision making that is more sustainable.

Norbert Bol

Literature

Christensen, P. H., Robinson, S. J., & Simons, R. A. (2018). The influence of energy considerations on decision making by institutional real estate owners in the USRenewable and Sustainable Energy Reviews94, 275-284.

Photo’s by GotCredit

 

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