that is exacerbated by structural characteristics of politics, such as short-term election cycles. Caplin and Leahy (2004) build on the Strotz model, stating that the revealed preference in markets is the most impatient Pareto Optimum - an outcome that reflects short-term thinking and prioritizes immediate benefits over future gains. They argue that policy makers should be more patient than private citizens, considering future generations to account for intergenerational equity (discussed further below). In summary, this paper has suggested three significant limitations to current NPV models that are causing market failures, mispricing of certain investment opportunities and the inefficient allocation of long-term capital to address climate change as well as health and social inequities: • Static discount rates and the reliance on exponential discounting fails to account for increasing uncertainty, changes in preferences over time, and long-term (sometimes compounding) value creation that requires dynamic discounting. • Monological capital discounting overlooks the contributions of multiple forms of capital to goods and services, as well as their inherent differences around variables that include growth, deprecation and replenishment. • Intergenerational myopia, which undervalues long-term outcomes and externalities and prioritizes short-term gains over the long-term welfare of future generations. To move our discussion from limitations to solutions, we engaged with financial accounting as an analytical lens. The justification for this approach was to acknowledge the centrality of accounting practices in underpinning the disclosure requirements of investment managers, specifically in terms of materiality. F rom a financial accounting perspective, the limitations set out above can be framed as relating to materiality, defined according to the IFRS as: Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary uses of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific entity. 50 The inherent subjectivity of materiality judgements is a core element of this paper, as we argue that NPV calculations in conventional investment analysis risk inaccuracy as they may fail to account for all material information necessary for setting an appropriate discount rate. This subjectivity also allows for alternative perspectives and attendant data to be recognised as decision-relevant depending on the investment context under analysis. Specifically, we set out our solutions in terms of multivocality which acts as an interpretive framing to enhance the range of decision-useful, material data to inform more effective capital allocation. We discuss the multivocality framing next.
Multivocality
Traditional materiality judgments in finance are typically made by qualified professionals, much like how doctors diagnose medical conditions or judges interpret laws. While this expertise is valuable, in certain cases, it may be insufficient for assessing long-term investments in complex and dynamic areas such as climate change mitigation or global health initiatives. In these contexts, reliance on purely financial indicators may lead to mispricing, and flawed risk assessments requiring the monetization of non-financial data. 51
Therefore, we argue that effective materiality judgments are context-sensitive, dynamic, and inclusive, adjusting for whose voices are heard and whose are excluded. This is particularly relevant
50 https://www.accounting.com/resources/gaap/ 51 Appendix 1 sets out methods to calculate the monetary value of non-financial data.
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