Sustainable Value is the first value-based approach to assessing and managing sustainability performance. Existing sustainability assessments follow a burden-based logic. They try to assess the use of resources, emissions or externalities on the basis of the burden, cost or harm they cause. It does not come as a surprise that these assessments are highly contested. Environmental resources, emissions and externalities do not come with a price tag and environmental economists struggle to arrive at consensus estimates.
Interestingly this problem is shared with financial economists. The use of capital does also not come with a price tag. Financial economists are therefore using an idea that was first proposed in the 19th centure: Opportunity costs. An investment covers its cost of capital when it earns at least its opportunity costs, i.e. the return that an alternative use of capital could have generated.
Interestingly, the idea to apply opportunity cost thinking also the environmental domain was proposed as early as 1894 by the American economist David Green (1864-1925).
"Not only time and strength, but commodities, capital, and many of the free gifts of nature, such as mineral deposits and the use of fruitful land, must be economized if we are to act reasonably. Before devoting any one of these resources to a particular use, we must consider the other uses from which it will be withheld by our action; and the most advantageous opportunity which we deliberately forego constitutes a sacrifice for which we must expect at least an equivalent return." (Green, D., 1894: Pain-Cost and Opportunity-Cost. The Quarterly Journal of Economics, 8(2), 218-229)
It took more than 100 years for this idea to be picked up and put into practice (Figge 2001). The Sustainable Value approach measures value creation by deducting the opportunity cost of the use of economic, environmental and social resource use from the return that companies generate.
This website applies this thinking to the emission of CO2 by German companies. The alternative use in this case is the emission of CO2 by other German companies. The return that is created is Gross Value Added, i.e. the contribution a company makes to the Gross Domestic Product of Germany.
The opportunity cost of CO2-emissions in Germany is therefore given by the ratio of GDP per tonne of CO2 emission. A company that covers this opportunity cost will create Sustainable Value.