Sustainable Value
Encyclopedia
Sustainable value is a way of managing and measuring sustainability
Sustainability measurement
Sustainability measurement is a term that denotes the measurements used as the quantitative basis for the informed management of sustainability...

 performance. The concept was developed by researchers who are working today for Euromed Management School (Marseille/France) and the IZT - Institute for Futures Studies and Technology Assessment (Berlin/Germany). To date Sustainable Value is primarily used to assess corporate sustainability
Corporate sustainability
Corporate sustainability is a business approach that creates long-term consumer and employee value by not only creating a "green" strategy aimed towards the natural environment, but taking into consideration every dimension of how a business operates in the social, cultural, and economic environment...

 performance.

Sustainable value differs from existing approaches by the fact that it is value-based while all other existing approaches to sustainability assessment (such as environmental impact assessments) are burden-based, i.e. they are assessing environmental and social resource use based on the burden that is created. Using the sustainable value approach, economic, environmental and social resources are assessed and aggregated based on their relative value contribution and can be expressed in a monetary unit like euros, dollars or pounds.

The concept

Sustainable value is based on the notion of opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...

s. Opportunity costs are used in financial markets to calculate the cost of capital. In financial markets, the cost of using € 100 over the course of one year is determined by the return that could have been generated through an alternative investment of the capital. Sustainable Value is the first concept to extend this logic to environmental and social resources.

Sustainable value is calculated in five steps:
  1. Calculate the environmental, social and economic efficiencies of the entity using the resources. Efficiency is calculated by relating the return to resource use.
  2. Calculate the environmental, social and economic efficiencies of the benchmark (= calculate opportunity costs).
  3. Calculate the value spreads by subtracting the efficiency of the benchmark (Step 2) from the efficiency of the entity (Step 1).
  4. Calculate the value contributions by multiplying the amount of environmental, social and economic resources used with the corresponding value spread (Step 3), respectively.
  5. Calculate sustainable value by adding up the value contributions (Step 4) and dividing by the number of resources considered. This avoids double counting.


Sample application
The sustainable value approach can be demonstrated using the example of British Petroleum (BP) (For a detailed explanation see Figge, F. & Hahn, T. (2005): "The Cost of Sustainability Capital and the Creation of Sustainable Value by Companies", Journal of Industrial Ecology, 9(4), 47-58.).

In 2001, BP created the following return and employed the following economic, environmental and social resources (Table 1):

Table 1: Performance data of BP in 2001
BP (2001) Amount
Net Value Added [£ million] 15,563
Nonfinancial Assets [£ million] 69,885
CO2 [t] 73,420,000
CH4 [t] 367,201
SO2 [t] 224,541
NOx [t] 266,133
CO [t] 124,584
Work accidents [number] 83
PM10 [t] 16,666


Note: t = metric tonne
Tonne
The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...

 = megagram (Mg) = 1000 kilograms (kg, SI) ≈ 1.102 short tons

Source: Figge & Hahn 2005

In this example the return of BP is measured as Net Value Added and the UK economy is used as a benchmark. The macroeconomic equivalent of Net Value Added is the Net Domestic Product
Net domestic product
The net domestic product equals the gross domestic product minus depreciation on a country's capital goods.Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration...

 (NDP). Table 2 shows the Net Domestic Product
Net domestic product
The net domestic product equals the gross domestic product minus depreciation on a country's capital goods.Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration...

 and resource use of the UK economy in 2001.

Table 2: Performance data of the United Kingdom in 2001
UK economy (2001) Amount
Net Domestic Product [£ million] 884,718
Total Net Wealth [£ million] 4,375,200
CO2 [t] 572,500,000
CH4 [t] 2,195,238
SO2 [t] 1,125,000
NOx [t] 1,680,000
CO [t] 3,966,500
Work accidents [number] 132,696
PM10 [t] 178,000


Source: Figge & Hahn (2005)

The next table shows how Sustainable Value is calculated.

As described above, in the first step the return on resources of BP is calculated.

BP generated about £ 212 Net value Added per ton of CO2 in 2001.

In a second step the return on resources of the UK economy (benchmark) is calculated.

The UK economy generated about £ 1,545 Net Domestic Product per ton of CO2 in 2001.

In a third step the value spread is calculated.

In 2001, BP generated £ 1,333 less return than the UK economy per ton of CO2.

In a fourth step the value contribution is calculated.

In 2001, the use of 73,420,000 t of CO2 generated about £98bn less return than if CO2 had been given to the UK economy on average. This step is repeated for all resources employed by the company.

In a fifth step all value contribution are added up and divided by the number of resources considered. The result is called Sustainable Value.

Table 3: Calculation of BPs Sustainable Value for the year 2001

Source: Figge & Hahn 2005

BPs Sustainable Value amounts to about £72bn. Put differently, had BPs set of financial, environmental and social resources been used by the UK economy on average rather than by BP an additional £72bn Net Domestic Product could have been created.
Projects
The Sustainable value approach has been applied in several projects and case studies.

The EU-funded project ADVANCE (Application and Dissemination of Value-based Eco-ratings financial markets) used the Sustainable Value approach to assess the environmental performance of 65 European companies in monetary terms.

In a project that is funded by the German Federal Ministry of Education and Research (NeW – Nachhaltig erfolgreich Wirtschaften) the Sustainable Value approach is used to assess the triple bottom line performance of 28 German companies.

In a new EU-funded project SVAPPAS (Sustainable Value Analysis of Policy and Performance in the Agricultural Sector) a European consortium of research organisations uses the Sustainable Value approach to measure the sustainability performance of the agricultural sector in Europe.
External links
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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