Each year during the forecasting and budgeting season, sustainability officers face a common finance request: Please indicate the return on investment (ROI) of the projects in your portfolio. This value information is then factored into funding plans for the next year and beyond.

Some finance teams substitute other value-based measures for ROI, such as net present value (NPV), or discounted cash flow (DCF) analysis. But the story is the same: The strategic benefits of environmental, social, governance (ESG), or other hard-to-quantify (H2Q) initiatives are often hard to measure in value-based terms, and as a result, can sometimes be underfunded or passed over completely. Measuring H2Q benefits in value-based terms and applying portfolio optimization techniques enables organizations to better align H2Q funding decisions with strategy and maximize shareholder value.

Well-disciplined finance functions employ rigorous, value-based tools such as ROI in financial planning and performance measurement. But even these rigorous tools can ignore key, difficult-to-measure value drivers. For example, how do you measure the ROI of increasing employee engagement, or decreasing environmental risk?

Difficult-to-measure value contributions from sound risk management processes, reduced environment impact, worker health & safety improvements, or other corporate responsibility programs are often omitted from value-based analyses. As a result, these elements are often handled on the side—qualitatively. Inefficient or irrational project funding decisions like those illustrated below are often used instead of measured, quantitative, value-based assessments.


Project Portfolio Optimization (PPO) is a value-based process that measures the direct and H2Q, or indirect, financial impact of various sustainability projects. PPO helps to align project portfolio funding with corporate strategy.

An indirect valuation method furnishes a better approach: translate the benefits of H2Q into monetary terms, without over-reliance on sometimes expensive and potentially misaligned statistical data or regression analysis. How, then, are these H2Q sustainability benefits monetized? How does this approach fit into the shareholder value framework?

The answer lies in a methodology called multi-attribute utility analysis (MUA). MUA was formalized by Keeney and Raiffa’s work in 1976[1], and is deeply rooted in von Neumann and Morgernstern’s seminal work on utility theory[2]—one of the cornerstones of modern microeconomics. It has been widely adopted by government agencies for public policy decisions, which often require trade-offs between competing, non-financial objectives.

Instead of attempting to quantify benefits directly in cash-flow terms, MUA measures the impact of sustainability initiatives against specific performance metrics for each aspect of an organization’s strategic objectives. Trade-off models can then be used to obtain a total impact in monetary terms.

With a value model in place, key performance indicators help track the non-financial impact of various initiatives, and then, even more importantly, translate that impact into monetary terms. This is a key differentiator from alternative methods such as balanced scorecards or strategic alignment, and a requirement in assessing meaningful benefit-to-cost ratios and putting all initiatives on a level playfield when making funding decisions.

PPO uses MUA to measure total value or ROI — including both direct and indirect drivers —total value measurement. Armed with total value and taking into account project dependencies, PPO’s optimization feature helps to align the budgeting and planning process with strategy and drive better performance.

Optimized spend analysis — the efficient frontier


[1] Keeney, R. & H. Raiffa (1976), Decisions with Multiple Objectives: Preferences and Value Tradeoffs

[2] von Neumann, J.  & O. Morgenstern (1953), Theory of Games and Economic Behavior

Donna Coallier is a Partner in PwC’s US Valuations Practice. Donna provides valuation and financial reporting advice to her clients, focusing on strategic value analytics. She is well versed in M&A, joint ventures, and other transactions as well as value analytics covering topics such as capital and funding decisions and sustainability valuation.