• C F,t: The financial costs / benefits at time t . • C NF,t: The non-financial costs / benefits at time t . • TV F,t: The terminal value of financial costs / benefits at time t . • TV NF,t: The terminal value of non-financial costs / benefits at time t . • Or : the outcomes-based discount rate, which is hyperbolic and considers pluralistic capital contributions. • C 0 : the initial investment, or cost at t 0 . • g 0 = the initial growth rate at time t = 0. • λ = is the decay rate, controlling how quickly g(t) declines over time. • e -λt = is the exponential decay term, ensuring that the growth rate decreases as time progresses. o For this to hold, Or must be greater than g. In summary, the ONPV model aims to address the limitations of NPV and Terminal Value, whilst systematically including non-financial outcomes and discounting the costs / benefits through a dynamic, outcomes-based discount rate ( Or ).
Table 4 compares the conventional NPV approach and the ONPV model.
Aspect
Conventional NPV
ONPV
Utilisation of Or incorporates dynamic rates, addressing uncertainty, changing preferences over time and multiple capital contributions. Pluralistic approach, acknowledging the various capital contributions to goods and services. Includes financial benefits, but not in isolation. Explicitly incorporates non- financial factors such as emissions, resource depletion, and community impacts into the analysis. Environmental degradation is explicitly accounted for, using near-zero or negative rates for irreversible damage. Social costs are quantified and discounted, considering reputational risks and long- term societal impacts.
Discount Rate
Applies a fixed, uniform discount rate ( r ) to all cash flows, assuming consistency in time preference, opportunity cost and risk. Monological approach, focusing on financial capital. Analysis is focused on financial net benefits, e.g., cash flow generation. Largely excludes non-financial factors like environmental degradation and social costs or includes them indirectly as compliance costs. Compliance costs are often treated as fixed, without long- term valuation of environmental impacts. Social costs, such as potential community displacement are ignored or treated as externalities.
Capital Consideration
Inclusion of Financial Outcomes
Inclusion of Non- Financial Outcomes
Environmental Costs
Social Costs
Decision Making Logic Based on present bias,
Balances bounded and unbounded rationality,
prioritizing short-term gains over long-term resilience.
incorporating both immediate and intergenerational value.
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