Sustainability ROI measurement: Towards a more comprehensive model on sustainability investment decision-making – A case study

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Journal ISSN
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School of Arts, Design and Architecture | Master's thesis
Location:
P1 OPINNÄYTTEET D 2015 Tarkkonen
Date
2015
Major/Subject
Mcode
Degree programme
Language
en
Pages
104+4
Series
Abstract
Sustainability is a growing trend, which has resulted in companies around the world seeking ways to utilize it as a source of competitive advantage (Willard 2012; Laszlo & Zhexembayeva 2011). However, according to the literature on sustainability (Epstein & Rejc Buhovac 2014; Porter et al. 2012), regardless of the trend, most companies still lack adequate metrics to measure their sustainability performance and to link the results to their financial performance, which in turn, has hindered the full integration of sustainability into business. The purpose of this thesis is to examine the possibility of measuring sustainability’s return on investment (ROI) and of using that data as part of corporate decision-making and the company’s broader evaluations of its societal impact. To increase the comprehension of the subject matter, the thesis first presents a literature review on how sustainability is typically approached within corporations, how it is integrated into investment decisions, and how sustainability’s ROI is traditionally measured. The thesis also uses qualitative research to look at the formal investment processes of the case company. In this part, the thesis aims to deepen understanding on how sustainability is currently taken into account in the case company’s investment decisions, how sustainability should be addressed in them, and whether measuring sustainability’s ROI would result in more comprehensive decision-making. The idea for measuring sustainability ROI came from Design ROI, which as a metric was developed for better understanding of the business benefits generated by the use of design (Design ROI Research Project 2012). Furthermore, the ROI methodology (Phillips & Phillips 2011) has an essential role within the thesis, because it has been applied previously to measure the ROI of sustainability initiatives. Besides examining the possible payoffs for companies, the thesis also approaches the subject matter from the rather holistic perspective of acknowledging that sustainability by its nature extends over conventional business boundaries to include the greater public good. Therefore, the objective of this thesis is also to examine the possibility of measuring externalities and using them as inputs for measuring the sustainability ROI. The qualitative research suggests that there is a need for more comprehensive decision-making in terms of sustainability. Comprehending more holistically the impacts of various investments and having the ability to communicate them in economic terms is considered essential. Nevertheless, quantifying and monetizing the impacts of sustainability in terms of their further use in investment accounting is seen challenging and, thus, debatable. The subject matter does not only raise questions about the credibility and subjectivity of the data, but also about how the different environmental, social, and economical costs and benefits ultimately reflect back to financial performance. Regardless of the aforementioned challenges, the research shows that measuring sustainability ROI is believed to have a positive effect on decision-making when the measurement is well executed. Furthermore, the ability to pinpoint the costs and benefits for the company, as well as the society, is considered valuable and important.
Description
Supervisor
Jalas, Mikko
Thesis advisor
Finér, Aki
Keywords
sustainability, ROI, corporate social responsibility, sustainability performance
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