Application and Dissemination of Value-Based Eco-Ratings in Financial Markets

In this project we apply for the first time the value-based logic used in the financial markets to eco-ratings. We assess the environmental and economic performance of listed companies and thus demonstrate the feasibility of value-based eco-ratings on a first full scale. All existing methodologies to assess corporate environmental performance follow a burden-based path. Burden-based approaches concentrate on how dangerous, burdensome or costly different environmental impacts are relative to each other. This ratio is used to assess, aggregate, and compare the various environmental consequences of corporate activity. However, while conceptually sound, burden-based assessment approaches face a number of problems, which limit their applicability in practice. Most importantly, it is impossible to determine their relative weight as long as the relative gravity of different environmental problems is not known.

The Sustainable Value approach applied in this project is the first value-based methodology for the assessment of corporate environmental and sustainable performance. The Sustainable Value concept assesses the use of environmental resources based on their relative contribution to value creation instead of their relative harmfulness. For this purpose Sustainable Value follows the example of the financial markets and uses opportunity costs to assess environmental and social burdens. Opportunity cost thinking allows to express the sustainable performance of companies in monetary terms. Sustainable Value does not require the monetarisation of external effects.

In the ADVANCE Project we use the Sustainable Value approach to compile value-based eco-ratings. This project funded by the European Commission under the LIFE-Environment programme aims at demonstrating the feasibility of and potential for value-based eco-ratings in today’s financial markets and, eventually, to disseminate the relevant know-how to key financial actors. By demonstrating and disseminating value-based eco-ratings the project enables financial decision makers to consider environmental aspects appropriately and, thus helps making financial markets’ decisions more sustainable.

The project has three major parts:
In the empirical part of the project we compile a survey of value-based eco-ratings of at least 50 European companies that assesses their contribution to more sustainable economic activity in the EU, as well as the degree to which European companies contribute to the achievement of European policy targets. In order to foster the role of eco-rating agencies as SMEs and to transfer relevant knowledge on value-based eco-ratings we partner with four different European eco-rating agencies.

For the dissemination of both the results of the survey as well as the value-based methodology for eco-ratings in the second part of the project we compile a practitioner handbook on value-based eco-ratings. This handbook is addressed to financial market actors and explains step by step how to compile, interpret and use value-based eco-ratings for sustainable decision making in the financial markets.

In the third part, we conduct training workshops in three different European countries among which one will be a new EU member state. In these workshops financial market actors will be familiarised with the value-based methodology for eco-ratings and will actively learn how to compile, interpret and use value-based eco-ratings.

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