4 common elements to integrating sustainability into capital investment (CAPEX) appraisals
The A4S CFO Leadership Network has observed four common elements in their approaches to integrating sustainability into capital investment appraisals. These are:
1. Who to involve and governance: Establishing accountability (through leadership) and changing mind-sets (through culture) are the foundations for embedding the change. Involving the right mix of people with appropriate roles and capabilities is crucial.
2. What to assess: To identify and prioritise sustainability issues for consideration in the capital investment decision, it is useful to think about:
- Types of sustainability issues (social, environmental, economic)
- The whole lifecycle (from construction to operation to end-of-life)
- The value chain (from suppliers to own operations to customers)
3. How to assess: To assess the sustainability issues identified, there are four main approaches:
- Qualitative e.g. high / medium / low rating
- Quantitative e.g. KPI scorecards
- Monetary, using shareholder / company value e.g. energy costs
- Monetary, using stakeholder / or societal value e.g. pollution cost to society
4. How to decide: In order for decision makers to make sense of a sustainability assessment, they need frameworks. Key considerations when developing a framework include:
- Setting clear decision-making criteria: Non-financial or financial depending on type of assessment undertaken
- Choosing between investment options: Holistic frameworks and structured decision-making methods can help formalise the consideration of sustainability as core to the investment case
- Exploring funding options: The way in which funding is sourced can influence how capital is allocated between investment options from simply using your mainstream capital budget as the sole source of funding to identifying new sources of specialist funding
To find out more about integrating sustainability into capital investment appraisals download our practical guide>
