The Evaluation of Environmental Capital Projects

Abstract

Traditional capital investment appraisal models are, in many cases, biased against environmental projects. What is required is a multi-attribute approach that includes an assessment of the environmental benefits. The financial appraisal profile (FAP) model seeks to address this issue. By making the correct investment decision in the first place and by involving senior managers in the appraisal process, the organization is better placed to achieve project success. Adopting the FAP model with the inclusion of an environmental assessment in the form the “environmental score index” will help focus top management on an increasingly important corporate strategy issue. An illustrative case study is used to outline the important aspects of this new approach. The FAP approach, which is presented in this chapter, will help to fill a gap in the environmental investment literature, where there is a paucity of comprehensive, structured, and transparent methodologies that can prove acceptable to management decision makers from a variety of functions and viewpoints.