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INTRODUCING THE
SUSTAINABLE ASSET VALUATION (SAVi) TOOL
Delivering insight for investing
in sustainable infrastructure
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.
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.
How does ESG
performance increase
value for money for
tax payers?
Do sustainable assets trigger positive
externalities? (e.g. higher GDP)
Can sustainable
infrastructure increase
fiscal sustainability?
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.
Potential
risks and
externalities
Physical/Environmental
Higher global temperatures, rising sea levels, water
shortages, water and air pollution, land degradation,
extreme weather, biodiversity.
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.
population
wastewater
wastewater
treatment
n loadings from
wastewater
+
+-
agriculture
land urban area
+
+
+
fertilizer use
+
total loadings
+
+forest
cover
wetlands
-
-
-
-
natural nutrient
absorption
+
+
-
sedimentation /
siltation
-
health
impacts
productivity
economic
activity / grp
employment
+
+
+
+
-
tourists
+
+
infrastructure
+
+
-
water
quality-
-
water in lake
dal
-
-
+
+
precipitation +
<population> -
cross border inflow
+
R1
R2
B5
B8
B2
B1
B3
B6
B7
B4
SAVi’s systemic lense: The rationale
• Systems Thinking (ST) demands the identification of the
underlying drivers of change that determine the need for
and adequacy of infrastructure (projects) in the respective
local context.
• Infrastructure-related risks and externalities are often
“hidden” and so are the costs associated with them. ST
contributes to identifying ‘ripple-effects’ of infrastructure
projects across sectors and actors.
• System Dynamics (SD) allows for generating different
projections (using simulation) to explore and reduce
investment-specific uncertainties.
Among all projects there is the necessity to identify opportunities and risks
that affect asset performance and maintenance in the long run. Therefore,
the asset must be regarded as part of the system rather than in isolation.
green gdp
gdp
natural capital additions
+
consumption
demand of natural
resources
natural capital
+
+
natural capital
growth
+natural capital
extraction
natural capital
depletion
natural capital
reductions
+
+
+
- +
ecosystem
services
productivity
(tfp)
+
+
+
infrastructure
(built capital)+investment depreciation
+
+
+
ecological
scarcity
-
-
human capital
social capital
(employment)
job creation
+
retirement
public
expenditure
health
education
human capital
growth
training
+
+
+
+
+
<human capital
growth>
+
private
profits
+
+
+
wages
+
+
+
+
R
R
R
R
R
B
B
GDP
The green arrows
show the impact of
Natural Capital
Stock on
Productivity and
GDP…
The yellow arrows
show the impact of
Consumption on
Natural Capital
and GDP…
The red arrows
show the impact of
Infrastructure
Investments on
GDP…
A View of the System Dynamics Model on
Vensim
A snap shot of the project finance model built on Excel,
following Corality SMART Methodologies
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
Fishing
Water quality
Forest
Agriculture
Population
Tourism
Biodiversity
Employment
Culture,
education
GDP
Population
80,000
60,000
40,000
20,000
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Person
Population : Bita 28Aug - BAU
Population : Data
total value added
400 B
300 B
200 B
100 B
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Pesos/Year
total value added : Bita 28Aug - BAU
total value added : Data
Biodiversity
1.098
1.023
.9489
.8744
.8
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Dmnl
Biodiversity : Bita 28Aug - BAU
fallow / Forest Land
247,000
246,500
246,000
245,500
245,000
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Ha
"fallow / Forest Land" : Bita 28Aug - BAU
"fallow / Forest Land" : Data
water quality index
.9
.85
.8
.75
.7
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
water quality index : Bita 28Aug - BAU
Agriculture Land
3000
2250
1500
750
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Ha
Agriculture Land : Bita 28Aug - BAU
Agriculture Land : Data
Governance
0
-.075
-.15
-.225
-.3
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Dmnl
Governance : Bita 28Aug - BAU
ornamental fishing
35.04
31.28
27.52
23.76
20
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Time (Year)
Ton/Year
ornamental fishing : Bita 28Aug - BAU
SAVi application to infrastructure
Fishing
Water quality
Forest
Agriculture
Population
Tourism
Biodiversity
Employment
Culture,
education
GDP
SAVi application to infrastructure
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
A
B
Total avoided
costs and
benefits
(A+B+C)
Societal
avoided costs
and benefits
(B+C)
Firm avoided
costs and
benefits
C
Direct cost
reduction for
public budget
items (e.g. health)
Total
investment
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
SAVi application to infrastructure
We assess impacts across:
- Dimensions of development
- Sectors
- Economic actors
- Over time
- In space
Method: integrated cost benefit analysis
Integrated CBA
A
B
C
Traditional CBA (capital, O&M, fuel and
carbon tax) including SAVi estimates on
the impact of climate change on thermal
efficiency and fuel costs.
Positive and negative externalities
related to each technology analyzed.
Summary of costs and benefits,
estimation of the SAVi CBA.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Wind (off) Coal Gas Nuclear Biomass Hydro Solar Wind (on)
Capital and O&M cost -58,454 -25,273 -5,886 -44,035 -25,273 -33,515 -44,452 -40,286
Fuel costs - -20,991 -49,925 - -48,550 - - -
CC impacts on fuel costs - -692 -1,722 - - - - -
Carbon tax - -9,196 -4,073 - - - - -
Subto tal (1) -58,454 -56,153 -61,605 -44,035 -73,824 -33,515 -44,452 -40,286
Income spending 1,230 724 550 916 3,119 877 2,876 1,073
Defense payments -15 - - - - - - -
Fisheries -13 - - - - - - -
Sand mining -28 - - - - - - -
Recreation -238 - - - - - - -
Real estate - - - - - - - -
Land use 4,111 -1,488 -88 -198 -614,800 -25,026 -13,528 -1,276
Waste management - - - -13,900 - - - -
Social Cost of Carbon -281 -14,635 -6,567 -150 -174 -100 -438 -448
Valuation of emissions (SAVi+) - -89,128 -26,746 -65 -17,573 - - -
Value o f externalities 4,765 -15,399 -6,106 -13,333 -611,854 -24,249 -11,090 -651
Subto tal (1 + 2) -53,689 -71,552 -67,711 -57,368 -685,678 -57,764 -55,542 -40,937
R evenues 52,440 52,440 52,440 52,440 52,440 52,440 52,440 52,440
Costsand Benefits -1,249 -19,112 -15,271 -4,928 -633,238 -5,324 -3,102 11,503
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.
Interested in alternative scenario?
Contact us
today to find
out more
about how
SAVi can
help you
Oshani Perera, operera@iisd.org
Andrea Bassi, andrea.bassi@iisd.net
Georg Pallaske,
georg.pallaske@iisd.net

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Assess Infrastructure Impacts and Value With SAVi

  • 1. INTRODUCING THE SUSTAINABLE ASSET VALUATION (SAVi) TOOL Delivering insight for investing in sustainable infrastructure
  • 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. How does ESG performance increase value for money for tax payers? Do sustainable assets trigger positive externalities? (e.g. higher GDP) Can sustainable infrastructure increase fiscal sustainability?
  • 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. Potential risks and externalities Physical/Environmental Higher global temperatures, rising sea levels, water shortages, water and air pollution, land degradation, extreme weather, biodiversity. 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. population wastewater wastewater treatment n loadings from wastewater + +- agriculture land urban area + + + fertilizer use + total loadings + +forest cover wetlands - - - - natural nutrient absorption + + - sedimentation / siltation - health impacts productivity economic activity / grp employment + + + + - tourists + + infrastructure + + - water quality- - water in lake dal - - + + precipitation + <population> - cross border inflow + R1 R2 B5 B8 B2 B1 B3 B6 B7 B4 SAVi’s systemic lense: The rationale • Systems Thinking (ST) demands the identification of the underlying drivers of change that determine the need for and adequacy of infrastructure (projects) in the respective local context. • Infrastructure-related risks and externalities are often “hidden” and so are the costs associated with them. ST contributes to identifying ‘ripple-effects’ of infrastructure projects across sectors and actors. • System Dynamics (SD) allows for generating different projections (using simulation) to explore and reduce investment-specific uncertainties. Among all projects there is the necessity to identify opportunities and risks that affect asset performance and maintenance in the long run. Therefore, the asset must be regarded as part of the system rather than in isolation.
  • 7. green gdp gdp natural capital additions + consumption demand of natural resources natural capital + + natural capital growth +natural capital extraction natural capital depletion natural capital reductions + + + - + ecosystem services productivity (tfp) + + + infrastructure (built capital)+investment depreciation + + + ecological scarcity - - human capital social capital (employment) job creation + retirement public expenditure health education human capital growth training + + + + + <human capital growth> + private profits + + + wages + + + + R R R R R B B GDP The green arrows show the impact of Natural Capital Stock on Productivity and GDP… The yellow arrows show the impact of Consumption on Natural Capital and GDP… The red arrows show the impact of Infrastructure Investments on GDP… A View of the System Dynamics Model on Vensim
  • 8. A snap shot of the project finance model built on Excel, following Corality SMART Methodologies
  • 9. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis
  • 10. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis
  • 11. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis
  • 12. Fishing Water quality Forest Agriculture Population Tourism Biodiversity Employment Culture, education GDP Population 80,000 60,000 40,000 20,000 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Person Population : Bita 28Aug - BAU Population : Data total value added 400 B 300 B 200 B 100 B 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Pesos/Year total value added : Bita 28Aug - BAU total value added : Data Biodiversity 1.098 1.023 .9489 .8744 .8 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Dmnl Biodiversity : Bita 28Aug - BAU fallow / Forest Land 247,000 246,500 246,000 245,500 245,000 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Ha "fallow / Forest Land" : Bita 28Aug - BAU "fallow / Forest Land" : Data water quality index .9 .85 .8 .75 .7 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) water quality index : Bita 28Aug - BAU Agriculture Land 3000 2250 1500 750 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Ha Agriculture Land : Bita 28Aug - BAU Agriculture Land : Data Governance 0 -.075 -.15 -.225 -.3 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Dmnl Governance : Bita 28Aug - BAU ornamental fishing 35.04 31.28 27.52 23.76 20 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Time (Year) Ton/Year ornamental fishing : Bita 28Aug - BAU SAVi application to infrastructure
  • 14. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis A B Total avoided costs and benefits (A+B+C) Societal avoided costs and benefits (B+C) Firm avoided costs and benefits C Direct cost reduction for public budget items (e.g. health) Total investment
  • 15. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis
  • 16. SAVi application to infrastructure We assess impacts across: - Dimensions of development - Sectors - Economic actors - Over time - In space Method: integrated cost benefit analysis
  • 17. Integrated CBA A B C Traditional CBA (capital, O&M, fuel and carbon tax) including SAVi estimates on the impact of climate change on thermal efficiency and fuel costs. Positive and negative externalities related to each technology analyzed. Summary of costs and benefits, estimation of the SAVi CBA. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Wind (off) Coal Gas Nuclear Biomass Hydro Solar Wind (on) Capital and O&M cost -58,454 -25,273 -5,886 -44,035 -25,273 -33,515 -44,452 -40,286 Fuel costs - -20,991 -49,925 - -48,550 - - - CC impacts on fuel costs - -692 -1,722 - - - - - Carbon tax - -9,196 -4,073 - - - - - Subto tal (1) -58,454 -56,153 -61,605 -44,035 -73,824 -33,515 -44,452 -40,286 Income spending 1,230 724 550 916 3,119 877 2,876 1,073 Defense payments -15 - - - - - - - Fisheries -13 - - - - - - - Sand mining -28 - - - - - - - Recreation -238 - - - - - - - Real estate - - - - - - - - Land use 4,111 -1,488 -88 -198 -614,800 -25,026 -13,528 -1,276 Waste management - - - -13,900 - - - - Social Cost of Carbon -281 -14,635 -6,567 -150 -174 -100 -438 -448 Valuation of emissions (SAVi+) - -89,128 -26,746 -65 -17,573 - - - Value o f externalities 4,765 -15,399 -6,106 -13,333 -611,854 -24,249 -11,090 -651 Subto tal (1 + 2) -53,689 -71,552 -67,711 -57,368 -685,678 -57,764 -55,542 -40,937 R evenues 52,440 52,440 52,440 52,440 52,440 52,440 52,440 52,440 Costsand Benefits -1,249 -19,112 -15,271 -4,928 -633,238 -5,324 -3,102 11,503
  • 18. 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.
  • 20. Contact us today to find out more about how SAVi can help you Oshani Perera, operera@iisd.org Andrea Bassi, andrea.bassi@iisd.net Georg Pallaske, georg.pallaske@iisd.net

Editor's Notes

  1. System dynamics (SD) is a flexible methodology that allows to integrate social, economic and environmental indicators in a single framework of analysis. SD models are based on the assumption that structure drives behaviour and use causal relationships to link variables. Models can be customized to analyse the socioeconomic implications of different actions across sectors (social, economic and environmental) and actors (e.g., households, private sector and the government), within and across countries. In fact, SD models can be top-down or bottom-up, general or partial equilibrium. The pillars of SD models are feedback, delays and non-linearity. The former are identified through the creation of causal maps, or Causal Loop Diagrams (CLD) – like the one shown above. A CLD has several purposes: (1) it brings the ideas, knowledge and opinions of the participants together; (2) it highlights the boundaries of the analysis; (3) it allows all stakeholders to reach a basic-to-advanced knowledge of the systemic properties of the issues analysed. Having a shared understanding is crucial for solving problems that touch upon several sectors, or areas of influence, which are normally found in complex systems (Sterman, 2000; Rouwette & Franco, 2014). Delays and non-linearity are captured through the creation of a quantitative model, which includes stocks and flows.
  2. IISD has developed a full fledged project financial model, following Corality Smart Financial modelling methodologies, to evaluate the financial viability of infrastructure projects and to assess the financial materiality of the externalities identified by SAVi. The project finance model demonstrates the following: How the financial viability of the project changes if externalities are integrated in the model as costs. How the key project finance indicators (internal rate of return, credit ratios) change under various climate risk scenarios (both physical and transitional).