Variable / limitation
Static Discount Rates Dynamic (hyperbolic) discount rates and negative adjustments in certain instances. Hyperbolic discount rates capture growing uncertainty around economic / investment growth and discount rates themselves, as well as changing preferences over time. Considers long-term value creation beyond traditional timelines. More accurate representation of long-term resilient value creation.
Monological Discounting
Intertemporal Myopia
Solution
Pluralistic discounting - acknowledges multiple capital contributions (built, human, social, natural) and their inherent differences.
Intergenerational equity - combines dynamic discount rates and pluralistic capital contributions to develop a more equitable intertemporal perspective A more balanced perspective around costs / benefits for current and future generations. Encourages long-term investment that enhances societal well-being.
Changes
Differentiated discounting methodologies for
varying capital contributions. Acknowledges differing characteristics and inherent differences. Broader perspective of risks and resource allocation.
Effects
Creates a weighted average discount rate that incorporates blended capital forms.
Supports long-term investment frameworks such as the UN SDGs.
Table 3: NPV and ONPV Models
This paper’s analysis of the NPV model’s limitations, along with proposed adaptive solutions, provide the theoretical foundations for an enhanced calculative model of investment future value, set out next.
Outcomes-Based Net Present Value Model (ONPV)
As noted above, this paper suggests that the conventional approach to NPV calculations and the associated discount rates are flawed. Specifically, conventional NPV models fail to incorporate material externality risk data and, therefore, often misprice the future - long-term - value of social and environmental investment opportunities. To address these limitations, we propose a new heuristic model: an outcomes-based NPV (ONPV) underpinned by outcomes-based discount rates ( Or ). The ONPV model addresses the three limitations set out above by incorporating non-static discount rates, pluralistic discounting, and, where possible, the inclusion and quantification of non-financial outcomes, aiming to mitigate intertemporal myopia. In this section, we outline the broad parameters and underlying logic of the new model. The ONPV framework also reflects principles consistent with stochastic and gamma discounting (Weitzman, 2001; 2010). By allowing the outcomes-based rate ( Or ) to vary across time and across different forms of capital, the model effectively treats the discount rate as a distribution rather than a single constant value. This mirrors the logic of gamma discounting, in which uncertainty about future rates generates a declining average rate when aggregated across possible scenarios. In this
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