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The Finance of Environmental Investments

In: Environmental Finance and Investments

Author

Listed:
  • Marc Chesney

    (University of Zurich)

  • Jonathan Gheyssens

    (University of Zurich)

  • Luca Taschini

    (London School of Economics and Political Science)

Abstract

A proper selection and valuation of investment (or disinvestment) projects is crucial for financial managers. This is particularly difficult in the context of risks, globalization of economy, technology changes, strong competition, and in the presence of information asymmetry and environmental constraints. In the last context, it is essential for governments to decide which policy to adopt in response to a threat to the environment and when to implement it. The decision making tool usually recommended by the corporate finance theory is the so called NPV (Net Present Value) approach. This conventional approach, generated by the neo-classical theory, does not fulfill the needs as it ignores the flexibility inherent to the decision making process and the dynamic aspects of project selection. As shown in this chapter, the real options approach provides a new and powerful decision making tool that overcomes the limitations of the traditional DCF (Discount Cash Flow) method, and permits a more appropriate valuation of investment projects related to the environment in particular.

Suggested Citation

  • Marc Chesney & Jonathan Gheyssens & Luca Taschini, 2013. "The Finance of Environmental Investments," Springer Texts in Business and Economics, in: Environmental Finance and Investments, edition 127, chapter 5, pages 93-146, Springer.
    • Handle: RePEc:spr:sptchp:978-3-642-36623-9_5
    DOI: 10.1007/978-3-642-36623-9_5
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    Cited by:

    1. Wang, Xu & Zhang, Xiao-Bing & Zhu, Lei, 2019. "Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector," Energy Economics, Elsevier, vol. 81(C), pages 142-158.
    2. Simone Borghesi, 2020. "Satisfied or Reimbursed: An Innovative Index-Based Mechanism for the Environmental Protection of a Tourist Region," Sustainability, MDPI, vol. 12(21), pages 1-8, October.
    3. Brown, Marilyn A. & Li, Yufei & Soni, Anmol, 2020. "Are all jobs created equal? Regional employment impacts of a U.S. carbon tax," Applied Energy, Elsevier, vol. 262(C).
    4. Xiaoyan Wang & Minggao Xue & Lu Xing, 2018. "Analysis of Carbon Emission Reduction in a Dual-Channel Supply Chain with Cap-And-Trade Regulation and Low-Carbon Preference," Sustainability, MDPI, vol. 10(3), pages 1-18, February.
    5. Magdalena Ziolo & Beata Zofia Filipiak & Iwona Bąk & Katarzyna Cheba & Diana Mihaela Tîrca & Isabel Novo-Corti, 2019. "Finance, Sustainability and Negative Externalities. An Overview of the European Context," Sustainability, MDPI, vol. 11(15), pages 1-35, August.
    6. Anca Simina POPESCU & Alina Georgiana HOLT, 2014. "The absorption of european funds for environmental protection during the period 2007-2013," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(16), pages 141-150, December.

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