Sustainable Asset Valuation Model (SAVi): Transparency for Decision-Makers and Investors

Transcription

1 Sustainable Asset Valuation Model (SAVi): Transparency for Decision-Makers and Investors Method and Insights November 2018 Andrea M. Bassi Georg Pallaske Madeline Stanley Oshani Perera

2 Infrastructure projects must consider carbon and environmental footprints, social cohesion, stewardship of natural ecosystems and the financial viability of projects. Infrastructure is an enabler, and hence it has to be sustainable. The Sustainable Asset Valuation (SAVi) tool assesses: environmental, social and economic risks and externalities. socio-economic benefits, such as employment, income generation and contributions to GDP.

3 Investors use a SAVi analysis to assess the impacts of improved sustainability on future cash flows and financial returns. Disclosure statements (e.g. carbon) Environmental, social and economic co-benefits. CSR, impact investing Governments use a SAVi analysis to assess value for money for public investments, and determine changes in government revenues and expenditure. Can sustainable infrastructure increase fiscal sustainability? Do sustainable assets trigger positive externalities? (e.g. higher GDP) How does ESG performance increase value for money for tax payers?

4 SAVi puts a financial value on risks and externalities that are not well understood and therefore ignored in traditional investment assessments. SAVi calculates the impacts of various risks and externalities on levelized costs, gross margins, net present value, internal rates of return and credit risk ratios.

5 Physical/Environmental Higher global temperatures, rising sea levels, water shortages, water and air pollution, land degradation, extreme weather, biodiversity. Potential risks and externalities Social/Political Currency inconvertibility, wage fluctuations, industrial action, war, terrorism, civil disturbance. Technological/Legal Environmental and social safeguards, troubleshooting experimental or emerging technologies. Consumer/Reputational Changing public opinion, industrial action, environmental disasters, human rights abuses. Economic Contribution to GDP, household incomes, carbon taxes, changes in feed-in tariffs, fluctuations in resources, access to land.

6 SAVi infrastructure asset types SAVi can currently be applied to energy, roads, buildings, water infrastructure, nature-based infrastructure. Waste infrastructure will be developed in 2019.

7 We customize SAVi to our clients needs Each analysis is custom tailored, whether clients are looking at a single project, a portfolio of projects, or an economic or industrial policy. Together with the client, we identify externalities and risks on a case-bycase basis.

8 Current applications Clients include: The Ministry of Infrastructure and Water Management of the Netherlands, the Directorate of Tourism of Jammu & Kashmir in India, UN Environment, WWF, the Moroccan Road Agency, and the Senegalese Government Agency for the Implementation of the Plan for an Emerging Senegal.

9 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space

10 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space

11 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space

12 Dmnl Ha Ton/Year Ha Dmnl Person Pesos/Year SAVi application to natural infrastructure total value added 80,000 Population 400 B 300 B 0 Governance 60, B 40, B , Time (Year) Population : Bita 28Aug - BAU Population : Data Agriculture Land Population Time (Year) total value added : Bita 28Aug - BAU total value added : Data GDP Culture, education Time (Year) Governance : Bita 28Aug - BAU Time (Year) Agriculture Land : Bita 28Aug - BAU Agriculture Land : Data Agriculture Employment Tourism Fishing ornamental fishing Water quality , ,500 fallow / Forest Land Forest Biodiversity Time (Year) ornamental fishing : Bita 28Aug - BAU 246, ,500 water quality index Biodiversity 245, Time (Year) "fallow / Forest Land" : Bita 28Aug - BAU "fallow / Forest Land" : Data Time (Year) water quality index : Bita 28Aug - BAU Time (Year) Biodiversity : Bita 28Aug - BAU

13 SAVi application to natural infrastructure Population GDP Culture, education Agriculture Employment Tourism Fishing Water quality Forest Biodiversity

14 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Total investment Total avoided costs and benefits (A+B+C) C B A Direct cost reduction for public budget items (e.g. health) Societal avoided costs and benefits (B+C) Firm avoided costs and benefits

15 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space

16 SAVi application to natural infrastructure Method: integrated cost benefit analysis We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space

17 SAVi application to Canada Stephenfield Reservoir and Pelly s Lake There are growing concerns over irregular rainfall patters and floods, water quality, irrigation and water needs. We use SAVi to: Identify, quantify and carry out an economic valuation of the assets and the services provided by natural infrastructure. Estimate the potential cost of generating these same services with new, built infrastructure. How much savings has natural infrastructure allowed to accrue? Is it worth conserving, restoring natural infrastructure or building new infrastructure?

18 Scope of the analysis Stephenfield Reservoir and Pelly s lake 1 What are the services provided? 1. Water supply 2. Scenic beauty 3. Nitrogen and Phosphorous uptake 4. Carbon sequestration 5. Economic activity What is the cost of providing these services? Maintenance 2. Water provisioning 3. Cattail production What is the cost of building alternative (built) infrastructure to provide the same services? 1. Water supply 2. Irrigation 3. Water (nutrient) treatment 4. Carbon sequestration 4 What are the revenues generated from the provision of these services? 1. Water provisioning 2. Tourism

19 Acreft Ha Results of the analysis Stephenfield Reservoir Services provided stranded land 70,000 52,500 35,000 Water Stock Stephensfield 17, Time (Year) stranded land : BAU AB7 CC stranded land : BAU AB7 no CC Time (Year) Water Stock Stephensfield : BAU AB7 CC Water Stock Stephensfield : BAU AB7 no CC

20 Results of the analysis Stephenfield Reservoir Services provided N Loadings From Nonurban Atmospheric Deposition Rate agricultural fertilizer total annual n loadings n loadings from manure on pasture (no manure storage system) n loadings from stormwater n loadings in treated wastewater urban indirect n loading from atmospheric deposition total annual n loadings M M total annual n loadings M 805, , Time (Year) total annual n loadings : BAU AB7 CC total annual n loadings : BAU AB7 no CC

21 CAD (discounted) Results of the analysis Pelly s Lake Economic assessment $200,000 $160,000 $120,000 $80,000 $40,000 $0 Cattail value added CBA item Basin maintenance

22 CAD (discounted) Millions Results of the analysis Pelly s Lake Economic assessment $25 $20 $15 $10 $5 $- Cattail value added Basin maintenance Irrigation Wastewater Carbon abatement CBA item

23 CAD (discounted) Millions Results of the analysis Pelly s Lake Economic assessment $80 $70 $60 $50 $40 $30 $20 Revenues Basin maintenance Total O&M costs Total capital costs of built infrastructure $10 $-

24 CAD (undiscounted) Millions Results of the analysis Stephenfield Reservoir Economic assessment $8.0 $7.0 $6.0 Existing reservoir New built infrastructure $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Water licenses Tourism Reservoir O&M Wastewater Irrigation Water storage Carbon

25 CAD (undiscounted) Millions Results of the analysis Stephenfield Reservoir Economic assessment $8.0 $7.0 $6.0 $5.0 $4.0 Existing reservoir Total revenues (not profit) New built infrastructure Capital and O&M: 50/50. Likely higher location! Advanced options are expensive and more capital intensive What storage buffer? Carbon sequestration or emission rduction $3.0 $2.0 $1.0 $0.0 $16,000 / year Profit? Water licenses Tourism Reservoir O&M Wastewater Irrigation Water storage Carbon

26 Millions Results of the analysis Stephenfield Reservoir Economic assessment $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 The capital cost of built infrastructure, and the resulting cost of financing, impact financial considerations for new infrastructure projects The O&M cost of built infrastructure would be higher than the current O&M cost of the reservoir and related natural infrastructure Reservoir O&M Total O&M costs of built infrastructure (replacement) Total capital cost of built infrastructure (replacement)

27 Interested in alternative scenario?

28 Interested in alternative scenario?

29 Conclusions Should we use the results presented, as is? Are the models, and results perfect? Does the approach support changing perspective? Does it stimulate more discussion? Does it help ask the right questions? At this stage we aim at being somewhat right and inform the debate than being wrong with a high degree of precision!

30 Contact us today to find out more about how SAVi can help you Oshani Perera, Madeline Stanley, Andrea Bassi, Georg Pallaske,