Planning and Financial Valuation Model for Sustainability Investments
There is a growing expectation globally that large scale investments by oil, gas and mining industries will bring broad-based benefits to local communities through sustainability investments in areas such as health, education and biodiversity. More specifically, managers within the extractive industries have known that investments in sustainability are key to protecting a company’s license to operate. Moreover, specific interventions, whether in health care, skills training, or some other area bring direct value to companies that make them.
Quantifying the value of these investments and planning accordingly, however, has long posed a challenge for the extractive industries and community development practitioners. Existing cost-benefit analyses were unsatisfactory as they did not have the same rigor as other, more traditional, investments considered by the industry. Establishing the value of the risk mitigated through such actions was essentially a shot in the dark. This inability to articulate its true value has kept sustainability investments outside the core of the project planning process and has impeded cross-functional integration.
In response, a partnership comprised of International Finance Corporation, Rio Tinto Alcan and Deloitte with additional support from the Government of Norway and the Multilateral Investment Guarantee Agency has sought to address this gap. For the past two years, they have worked to develop an innovative financial model that makes use of the collective experience of the extractive industries and focuses upon specific operating sites or projects, rather than the company as a whole. This model calculates a range for the NPV of a portfolio of sustainability investments, including both the direct value creation and the indirect value protection of these investments. By highlighting the relative value of specific investments, the Tool will help to align the company’s core business objectives with the sustainability investments it makes.