In today's rapidly evolving world, the push for sustainability is reshaping how we invest and build for the future.

Traditional financial models often overlook critical factors, leaving investors and governments unprepared for emerging risks.

Enter Sustainable Asset Valuation (SAVi), a revolutionary methodology that bridges this gap by demonstrating how sustainability drives real financial returns.

This article will guide you through the principles and practices of SAVi, offering actionable insights to transform your approach to infrastructure and investment.

What is Sustainable Asset Valuation (SAVi)?

SAVi is an advanced assessment tool developed by the International Institute for Sustainable Development (IISD).

It helps stakeholders steer capital toward projects that are not only profitable but also resilient and environmentally sound.

By quantifying often-ignored risks, SAVi reveals why sustainable assets can offer superior financial performance across their entire lifecycle.

• It uses systems thinking to model complex interactions between infrastructure and its surroundings.
• Project finance modeling ensures accurate projections of cash flows and returns.
• Customization tailors the analysis to specific assets, enhancing relevance and precision.

The Three Pillars of SAVi

SAVi's strength lies in its three core valuation pillars, which provide a holistic view of asset performance.

These pillars address risks and externalities that traditional methods miss, offering a more complete financial picture.

• Cost of Risk: This pillar identifies and financially quantifies economic, social, and environmental risks, such as climate impacts or social unrest.
• Cost of Externalities: It values indirect effects, including job creation and environmental benefits, that arise from infrastructure projects.
• Cost of Emerging Risks: This shows how today's externalities can transform into direct project risks tomorrow, aiding proactive decision-making.

Together, these pillars ensure that sustainability is integrated into financial valuations from the ground up.

How SAVi Outperforms Traditional Valuation Methods

Traditional approaches, like cost-benefit analysis, often fail to capture the full spectrum of sustainability impacts.

They tend to focus on short-term gains, neglecting long-term resilience and systemic effects.

SAVi addresses these shortcomings by simulating how risks evolve and affect cash flows over time.

• It includes indirect costs and opportunity costs that are typically excluded.
• The methodology models systemic impacts, providing a clearer view of project sustainability.
• Financial indicators are comprehensive, covering net present value, internal rate of return, and credit ratios.

This table highlights key differences, underscoring SAVi's advantage in fostering sustainable investments.

Practical Applications for Stakeholders

SAVi offers tailored benefits for various stakeholders, empowering them to make better-informed decisions.

For governments, it provides tools to assess public investments and enhance fiscal sustainability.

• Evaluate value for money in infrastructure projects.
• Measure co-benefits like job creation and innovation.
• Assess impacts on government revenues and expenditures.

For investors, SAVi helps optimize portfolios by linking sustainability to financial returns.

• Assess how improved sustainability affects future cash flows.
• Support impact investing initiatives with data-driven insights.
• Access information on environmental and social co-benefits.

These applications make SAVi a versatile tool in the push for greener economies.

Implementing SAVi: A Step-by-Step Guide

Adopting SAVi involves a structured seven-step process that ensures thorough analysis and actionable results.

This framework helps stakeholders customize the methodology to their specific needs and contexts.

1. Engage with clients to understand asset characteristics and objectives.
2. Identify material risks and externalities, determining relevant scenarios.
3. Obtain and verify data, using robust international datasets for assumptions.
4. Customize SAVi models and run simulations to analyze outcomes.
5. Analyze results and document findings for clear communication.
6. Present results, exploring how values change under different risk scenarios.
7. Deliver final results to support decision-making and strategy development.

Following these steps enables effective integration of sustainability into financial planning.

The Bigger Picture: Why Sustainable Valuations Matter

Sustainable valuations are crucial for addressing global challenges like climate change and social inequality.

Infrastructure built today determines our ability to meet goals like the Paris Agreement.

SAVi helps answer key questions that drive progress toward a sustainable future.

• What defines a truly sustainable asset, and how can it be measured?
• How does sustainable infrastructure contribute to GDP, employment, and innovation?
• Why can sustainable assets offer better financial returns than traditional ones?

By addressing these, SAVi aligns investments with broader societal and environmental goals.

Building a Sustainable Valuation Function

Operationalizing sustainable valuations requires addressing scalability and adaptability challenges.

Technology automation and process improvements are essential to keep pace with shifting regulations.

Adopting rigorous internal controls ensures that valuation tools remain effective and transparent.

• Leverage digital tools to integrate sustainability into existing financial models.
• Foster stakeholder alignment around alternative scenarios and risk assessments.
• Continuously update methodologies to reflect evolving best practices and data.

This approach transforms sustainability from a cost center into a value creator, driving long-term success.

As we move forward, embracing sustainable valuations is not just an option but a necessity for resilient economies.

SAVi provides the framework to make this transition, offering practical help for investors and policymakers alike.

By integrating these principles, you can contribute to a more sustainable and prosperous future.