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How not to measure sustainable value (and how one might)

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  • Kuosmanen, Timo
  • Kuosmanen, Natalia

Abstract

Sustainability is a complex multidimensional concept that entails economic, environmental, and social aspects. The sustainable value (SV) method developed by F. Figge and T. Hahn [Ecol. Econ. 48(2004) 173-187] is one of the most promising attempts to measure sustainability performance of firms. SV measures corporate contributions to sustainability by valuing resource use based on the opportunity cost, which must be estimated. This paper critically examines Figge and Hahn's estimator for opportunity cost, and shows that the proposed estimator rests on a number of strong, unrealistic assumptions. Evidence from Monte Carlo simulations conducted by authors shows that the proposed estimator performs very poorly even under ideal conditions. Having identified shortcomings in the SV method, we review some econometric approaches with a proven statistical foundation, which might be usefully applied in the present context.

Suggested Citation

  • Kuosmanen, Timo & Kuosmanen, Natalia, 2009. "How not to measure sustainable value (and how one might)," Ecological Economics, Elsevier, vol. 69(2), pages 235-243, December.
  • Handle: RePEc:eee:ecolec:v:69:y:2009:i:2:p:235-243
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    References listed on IDEAS

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    Cited by:

    1. Azad, Md A.S. & Ancev, Tihomir, 2010. "Using ecological indices to measure economic and environmental performance of irrigated agriculture," Ecological Economics, Elsevier, vol. 69(8), pages 1731-1739, June.
    2. repec:gam:jsusta:v:9:y:2017:i:9:p:1580-:d:111006 is not listed on IDEAS
    3. Merante, Paolo & Van Passel, Steven & Pacini, Cesare, 2015. "Using agro-environmental models to design a sustainable benchmark for the sustainable value method," Agricultural Systems, Elsevier, vol. 136(C), pages 1-13.
    4. Paolo Cupo & Rinalda Alberta Di Cerbo, 2016. "The determinants of ranking in sustainable efficiency of Italian farms," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 2016(2), pages 141-159.
    5. Figge, Frank & Hahn, Tobias & Barkemeyer, Ralf, 2014. "The If, How and Where of assessing sustainable resource use," Ecological Economics, Elsevier, vol. 105(C), pages 274-283.
    6. Pacini, G. Cesare & Merante, Paolo & Lazzerini, Giulio & Van Passel, Steven, 2015. "Increasing the cost-effectiveness of EU agri-environment policy measures through evaluation of farm and field-level environmental and economic performance," Agricultural Systems, Elsevier, vol. 136(C), pages 70-78.
    7. repec:gam:jsusta:v:10:y:2018:i:3:p:649-:d:134059 is not listed on IDEAS
    8. Ang, Frederic & Van Passel, Steven & Mathijs, Erik, 2011. "An aggregate resource efficiency perspective on sustainability: A Sustainable Value application to the EU-15 countries," Ecological Economics, Elsevier, vol. 71(C), pages 99-110.
    9. repec:eee:ejores:v:264:y:2018:i:1:p:1-16 is not listed on IDEAS
    10. Jason West, 2015. "Capital valuation and sustainability: a data programming approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 591-608, October.
    11. Zhou, P. & Ang, B.W. & Wang, H., 2012. "Energy and CO2 emission performance in electricity generation: A non-radial directional distance function approach," European Journal of Operational Research, Elsevier, vol. 221(3), pages 625-635.

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