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The Sustainable Asset Valuation (SAVi) tool

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IISD aims to demonstrate how sustainable infrastructure delivers better value-for-money for governments and taxpayers, and offers better financial returns for investors.

Sustainable infrastructure holds enormous potential for alleviating poverty, improving access to basic services, creating employment and businesses, and ultimately contributing to the well-being of people and the planet. 

IISD’s Sustainable Asset Valuation tool (SAVi) assesses the extent to which environmental, social and economic risks and externalities affect the financial performance of infrastructure assets. It also calculates the societal and economic benefits of sustainable infrastructure, such as employment, productivity, income and contributions to GDP.

Introducing SAVi

SAVi is an assessment methodology that helps governments and investors steer capital towards sustainable infrastructure.  The SAVi characteristics are:

Simulation

SAVi combines the outputs of systems thinking and system dynamics simulation (built using Vensim) with project financing modelling (built with Corality Smart).

Valuation

Cost of Risk

SAVi places a financial value on economic, social and environmental risks and shows how these risks affect financial performance of infrastructure projects and portfolios, across their life cycle. Such risks are often overlooked in traditional financial valuations.

Cost of Externalities

SAVi identifies and values in financial terms the externalities that arise as a direct consequence of infrastructure projects. This enables policy-makers and investors to appreciate the 2nd-order gains and trade-offs of infrastructure investments.

Costs of Emerging Risks

SAVi shows how externalities today can transform into direct project risks tomorrow. Such valuations help stakeholders make decisions in favour of sustainable infrastructure.

Customization

SAVi is customized to individual investment projects and portfolios. SAVi can therefore value the cost of risks and as well as a range of wider externalities that are directly material to each asset.

How does SAVi add value to traditional cost benefit analyses?

SAVI identifies a range of economic, social environmental risks and simulates how these risks will change and affect project cashflows across the asset life cycle. This is possible as the SAVi system dynamics model simulates how the asset impacts and is counter impacted by the economic, social and environmental "system" within which it is located. SAVi can hence value in financial terms a complex and dynamic range of risks, as well as indirect costs, intangible costs and opportunity costs.

As SAVi simulates the systemic impacts of infrastructure projects, it also identifies externalities and places a dollar value on them. Policy-makers and investors can thus use SAVi to determine the wider 2nd-order gains and trade-offs and prioritize projects based on their whole-life value for sustainable development. More importantly, they can use SAVi to understand how today’s externalities can turn into direct projects risks tomorrow.

SAVi also adds value by accounting for the cost of capital and other financial concerns such as currency depreciation, interest rates, inflation, varying cash flows and the present value of money. The SAVi project financial model calculates the net present value, internal rate of return, credit ratios, gross margin and such other financial performance indicators.

How can SAVi help?

SAVi helps policy-makers and investors understand the costs of economic, social and environmental risks and how these risks affect the financial performance of infrastructure projects across their life cycles. 

SAVi also values the costs and benefits of externalities. Policy-makers and investors can ascertain the whole-life value contribution of infrastructure projects to sustainable development. More importantly, they will be able to assess how externalities today can turn into direct project risks in the future. 

Hence, SAVi can be a valuable tool for planning and investing in sustainable infrastructure. Policy-makers and investors are challenged to understand a number of elements related to sustainable infrastructure:

  • What makes an asset sustainable?
  • How can different degrees of sustainability be defined and measured in a scientifically accurate manner?
  • How does sustainable infrastructure better contribute to enhanced GDP, employment, innovation, productivity and overall to the UN Sustainable Development Goals? Additionally, how can the contributions be measured? 
  • Why sustainable infrastructure assets can offer better financial returns and better value for money than their business as usual counterparts?
  • How much additional capital is required for sustainable infrastructure projects and infrastructure that is more resilient to changing climates?

SAVi provides a robust, interdisciplinary, quantitative response to all these questions. In the quest for assessment methodologies that are based on science and comfortably intersect with financial asset valuation, SAVi provides a solution.

Examples of Risks

Economic: Fluctuations in interest rates; currency devaluation, unexpected changes in feed-in tariffs.

Revenue: Fall in demand due to changing consumer preferences or stagnant wages.

Climate Risks: Lowered cash flow due to carbon taxes, writeoffs and impaired assets due to freak weather and natural catastrophes.

Environmental: Reduced revenue due to decreased production caused by polluted water and contaminated land.

Social: Impacts on cashflow caused by industrial action, civil disturbance and acts of terrorism.

Legal: Disruptions in construction and operation related to poorly executed environmental and social impact assessments.

Reputational: Allegations of human rights abuses resulting in divestment.

How does SAVi add value to traditional cost benefit analyses? 

SAVI identifies a range of economic, social environmental risks and simulates how these risks will change and affect project cashflows across the asset life cycle.  This is possible because the SAVi system dynamics model simulates how the asset impacts and is counter-impacted by the economic, social and environmental "system" within which it is located.  SAVi can hence measure in financial terms a complex and dynamic range of risks, as well as indirect costs, intangible costs and opportunity costs.  

As SAVi simulates the systemic impacts of infrastructure projects, it also identifies externalities and places a dollar value on them. Policy-makers and investors can thus use SAVi to determine the wider 2nd-order gains and trade-offs and prioritize projects based on their whole-life value for sustainable development. More importantly, they can use SAVi to understand how today’s externalities can turn into direct projects risks tomorrow. 

SAVi also adds value by accounting for the cost of capital and other financial concerns such as currency depreciation, interest rates, inflation, varying cash flows and the present value of money.   The SAVi project financial model calculates the net present value, internal rate of return, credit ratios, gross margin and other financial performance indicators.  

SAVi in use

SAVi is being used by policy and investors around the world. We are currently working on applications in the Netherlands, Senegal, Morocco, Germany, Ghana, Canada, India and more. Customized models are available for renewable energy assets, roads, buildings, irrigation, water supply and sewerage. More models will be made available in the near future. 

  • Report
    Green Economy Analysis in Georgia: A Sustainable Asset Valuation for the analysis of sustainable infrastructure investments

    Green Economy Analysis in Georgia: A Sustainable Asset Valuation for the analysis of sustainable infrastructure investments

    Georgia’s Green Economy Strategy includes infrastructure investments in agriculture, buildings and the tourism sector. SAVi assesses the investment costs, government revenues and co-benefits of implementing the Green Economy Strategy. Read More
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    This report discusses the results of the application of the Sustainable Asset Valuation (SAVi) tool to irrigation infrastructure in the Southern Agricultural Growth Corridor in Tanzania. Read More