Acceptable Investment Diagram: A Perspective for Risk Recognition

Ex ante assessment of sustainable marketing investments

“…As Modigliani and Miller ( 1958 ) show, in modern finance, the value of a company or asset depends not only on how it is financed, but it is necessary to consider the risk adjustment dimension, assessing how it varies in response to changes in other variables. In fact, every investment project today is evaluated not only in terms of expected return, that is, considering the actual gain from the operation of allocating monetary resources; but also, in terms of risk (Riggs, 1974 ; Errington, 1994 ). Risk is a key element to consider in contexts of uncertainty, and it underlies economic behavior.…”

“…By risk premium, we mean the premium (a higher expected rate of return on the investment) that the investor can obtain if he or she is willing to incur additional risk (Sharpe, 1964 ). Investors assess whether a certain risk will provide an acceptable return on investment (Riggs, 1974 ) in light of this trade-off. The risk/reward profile is a classic tool used to assess the acceptability of an investment, based on the evaluation of the potential profit (expected return) of an investment and the potential related losses (expected risk) (Errington, 1994 ; Weyns et al, 2011 ).…”

“…In our paper we adapt the risk/reward ratio (RRr) as a tool for ex-ante assessment of sustainable marketing investments. In accordance with Riggs ( 1974 ), the use of the RRr addresses the need to have a useful indication of the acceptability of an investment. For the purpose of assessing a sustainable marketing investment, this ratio promotes the marriage of marketing and finance.…”

“…Researchers in sustainable marketing have mainly focused on the contribution of sustainable marketing to company economic performance (Peattie, 2001 ; Rao & Bharadwaj, 2008 ; Hunt, 2011 ), corporate reputation (Fombrun & van Riel, 2004 ; van den Bosch, de Jong & Elving, 2005 ), and consumer consumption choices (Rokka & Uusitalo, 2008 ; Rettie, Burchell & Riley, 2012 ). There are no contributions in the sustainable marketing literature (Kumar, Rahman & Kazmi, 2013 ; McDonagh & Prothero, 2014 ; Kemper & Ballantine, 2019 ) which explain, define and assess sustainable marketing investments, particularly pertaining to risk assessments (Lintner, 1965 ; Riggs, 1974 ). The absence of literature on sustainable marketing investments may be due to its recent emergence, as well as its interdisciplinary nature, which requires the integration of corporate finance considerations with that of marketing (Rao & Bharadwaj, 2008 ), and, in particular, sustainable marketing.…”