A consortium of Canadian researchers have released a new financial valuation tool that proposes to demonstrate how corporate sustainable development practices can be translated into financial valuation measures.

Yachnin & Associates, Sustainable Investment Group Ltd., and Corporate Knights Inc. released their report, entitled The SD Effect - Translating Sustainable Development into Financial Valuation Measures – A Pilot Analytical Framework at the World Economic Forum in Davos, Switzerland at the end of January.

The report applies five standard financial valuation techniques – Ratio Analysis, Discounted Cash Flow (DCF), Rules of Thumb Valuation, Economic Value Added™ (EVA) and Option Pricing – to sustainable development metrics such as energy use and community involvement, to demonstrate how business aspects traditionally viewed as “soft” by analysts can be translated into hard valuations.

The issue of creating specific financial valuation tools based on social responsibility and sustainability concerns has been a vexing problem for socially responsible investment. The framework suggests ways that analysts can move SRI and mainstream analysis forward in a significant new direction.

The report draws on data from the public sustainability reports of five Canadian-based mining companies – Alcan, INCO, Noranda/ Falconbridge, Placer Dome and Teck Cominco.

“The report provides the first steps in using financial language to measure the impact of sustainable development on the bottom line,” writes Donald Reed, President and CEO of Franklin Templeton Investments Corp in a forward to the report. “This report, and its pilot framework, may be able to help lay the foundation in linking sustainable development to company performance and provide another tool for financial professionals to use in their on-going analysis.”

In an example of the kind of translation the report calls for, Inco’s solid waste reduction program has translated into cost reductions of six cents and 16 cents per share of Inco’s value.

For more information, visit http://www.sdeffect.com/index.html.

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