Capital valuation and sustainability: a data programming approach

Abstract

Project valuation methods tend to focus primarily on economic returns and ignore wider sustainable development concerns. Traditional project valuation methods attempt to monetize the benefit and cost impacts of environmental and social impacts. Monetizing costs and benefits of environmental and social goods and services however is challenging. To avoid the need to assign a priori dominance to any of these capital forms, we derive a composite index formed as an aggregate of sub-indices that represent financial returns, environmental impacts and social effects, index weights are obtained through solving a series of data envelopment analysis optimization models from a set of sub-indices over each project’s life. We assess the reliability and robustness of this approach using a portfolio of corporate projects. The sustainability of each project is benchmarked against the ‘best’ and ‘worst’ performing project within the portfolio so that weights of the component indices are derived using only the portfolio data. This approach ranks projects according to the optimal trade-off between sustainable outcomes without the need to arbitrarily prescribe weights to ensure environmental or social outcomes are met. The design of the model naturally favors projects that adequately address the full spectrum of economic, environmental, social, and any other desirable factors relative to the portfolio of projects under assessment. The results provide reliable and robust guidance for sustainable business decisions.