Calculating Social and Environmental Value

Dirk Schoenmaker and Willem Schramade
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Willem Schramade: Nyenrode Business University

Chapter 5 in Corporate Finance for Long-Term Value, 2023, pp 115-144 from Springer

Abstract: Abstract The previous chapters described the importance of balancing the various types of value, but how to calculate those types of value? The core model in corporate finance is the discounted cash flow (DCF) model, used to determine the financial value (FV) of a project or a company. This chapter explains how social (S) and environmental (E) issues can be expressed in value terms to arrive at social value (SV) and environmental value (EV). Recent advances in impact measurement enable companies to measure social and environmental quantities (such as life years saved by medical treatment or carbon emissions from using fossil fuels) and then to multiply these quantities by their respective shadow price, derived from welfare theory. The reason for monetary valuation of (non-market priced) social and environmental impact is to make them visible, and part of the decision-making process, by integrating SV and EV in the accounting system and business language. A common unit ($, € or any other currency) for financial, social, and environmental aspects of business impacts enables managers (and stakeholders) to compare different value components and to analyse the interactions between these value components. The mental challenge for many managers is to start thinking, analysing, and acting in this way, in spite of data gaps and other hurdles.

Keywords: Attribution of impact; Discounted cash flow (DCF) model; Environmental value (EV); Impact; Integrated value; Materiality; Materiality assessment; Quantification of social and environmental factors; Rights; Rightsholder; Shadow price; Social value (SV); Stakeholder; True prices; Well-being; Welfare; Welfare theory (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-031-35009-2_5

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DOI: 10.1007/978-3-031-35009-2_5

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