It is important to remember that to be successful, sustainability must be an integrative concept. Social equity, environmental protection, and economic development must all be considered. As someone who is attempting to promote sustainability and renewable energy projects, it is important to be able to explain all three pillars and how your project will allow an investor to be successful in all. In the real world, business decisions are most often based on the bottom line. An investor or company may have the best intentions of pursing a sustainability project, but if the costs are not advantageous, the project will not be approved.
There are several key financing terms and concepts that need to be understood and explainable to prove the worth of a project. Return on equity (ROE) is the amount of net income returned as a percentage of shareholder equity. It is used to measure profitability by revealing how much profit a company generates with the money shareholders invest. It also can be used for comparing a company’s profitability to other firms in the same industry. Weighted average cost of capital (WACC) is the rate a firm must earn to satisfy its shareholders and is used to determine whether an investment is worthwhile. Finally, net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. This is another tool to determine the profitability of a proposed investment or project.
Although there are many other financial and accounting tools, the three listed are useful for determining the value of a company and of an investment or project. When looking for investment for a renewable energy project, it may be useful to focus on NPV. This is used to compare the initial cost of a project to the total value of future revenue generated by that project. Calculating and getting a positive NPV shows that you understand the costs and revenues associated with the project and can explain exactly how the project will be profitable over a longer time period. Demonstrating a knowledge of finance will make it more likely to find investors for a project.
http://www.investopedia.com/terms/n/npv.asphttp://www.investopedia.com/terms/w/wacc.asp
Liston,
You have some very nice work in this lesson post. Your inclusion of social equity, environmental protection, and economic development is a valuable discussion point despite noting that financial considerations will be the selling point for many investors, especially those not wholly devoted to ecological investments. I have experience only with a few investors that appreciated social equity in this type of industry, and those are the long-term investors who have a larger stake in an ecological-based economy (hard to find on a small business model). Short-term investors, which are far too abundant, relegate concentrations to positive economic development and high returns, but are valuable when it comes to taking on risk of untested businesses. Due to the need for both involvements, understanding and conveying the different focuses will attract the needed investors for calculated arrangements.
You can find my post at http://engr312.dutton.psu.edu/2014/10/15/stama-sustainable-investment-presentations/, which focuses on presentation and confidence of material.
Tip
Hi Liston, great post I especially like that you mentioned sustainability needing to be integrated into the business plan and strategy in order to be successful. More or less a business can be successful for a short period in time but the market continuously fluctuates and in order to remain successful sustainability is essential. One quote that comes to mind is “the only constant in business is change”, I think that truly does sum up how business is never going to stay the same. Thanks for sharing!