Using the Return on Sustainability Investment (ROSI) Framework to Value Accelerated Decarbonization

Abstract

A major barrier to companies' more effective integration of sustainability into their corporate strategies is finding ways to estimate and communicate the full value of their business cases. In the authors' experience in working with or for companies, they find that most do not track the value sustainability delivers for an organization. And when companies do track and measure their returns on investments in sustainability, the estimates tend to be focused almost exclusively on those benefits that are most direct and tangible, and show up on the corporate P&L, as opposed to other benefits like employee commitment and regulatory forbearance, which are more likely to show up in a lower cost of capital. To help companies quantify the expected value of their sustainability programs, the authors have developed a Return on Sustainability Investment (ROSI™) framework. The study presented here describes the outcomes of a recent analysis in which the NYU Stern Center for Sustainable Business in collaboration with ALO Advisors worked with Capital Power Corporation, a North American power producer, to estimate the value likely to be created by accelerating its transition to clean energy. Through their work with the Chief Sustainability Officer, Chief Financial Officer, and senior managers from several key business functions, the authors identified seven major sources of benefits, and quantified the expected effects on value of four of them, to produce an estimated contribution to the value of the company of about $30 million. The ROSI™ framework and methodology has since been incorporated into CPX's investment decision‐making process, and played an important role in management's decision to commit to the operating changes required to accelerate the company's transition away from coal‐generated electricity.

Toward a view of integrating corporate sustainability into strategy: A systematic literature review

“…To evaluate the profitability of sustainability initiatives, the return on sustainability investment (ROSI) ratio, which is determined by quantifying CS-related factors of the invested company in the return on investment calculation frameworks, could be included in the overall investment valuation (Eckerle et al, 2020). In addition, a longer…”

“…To evaluate the profitability of sustainability initiatives, the return on sustainability investment (ROSI) ratio, which is determined by quantifying CS‐related factors of the invested company in the return on investment calculation frameworks, could be included in the overall investment valuation (Eckerle et al, 2020). In addition, a longer discounted period in the project evaluation of reinvestment strategies could prevent the quantitative comparison of sustainability projects with standard projects, since sustainable projects tend to be more profitable in the long run (Kudratova et al, 2018).…”