Net-Zero Insurance Alliance and Net present value: Difference between pages

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''Environmental concerns - emissions - financial sector - United Nations''.
(NPV).
1.
The total present value of all of the cash flows of a proposal - both positive and negative.
For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.


(NZIA).
For example a project requires an investment today of $100m, with $120m being receivable one year from now.


The Net-Zero Insurance Alliance is a global group of insurers and reinsurers committed to transition their underwriting portfolios to net-zero greenhouse gas emissions by 2050.
The cost of capital (r) is 10% per annum.
The NPV of the project is calculated as follows:


PV of Time 0 outflow $100m = $(100m)
PV of Time 1 inflow $120m = $120m x 1.1<sup>-1</sup> = $109.09m
NPV = -$100m +$109.09m = +$9.09m


The NZIA was established in July 2021.
2.
 
In simple ''Net Present Value analysis'' the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected. 
It is convened by the United Nations Environment Programme Finance Initiative (UNEP FI)'s Principles for Sustainable Insurance.
So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.


However this assumes the unlimited availability of further capital with no increase in the cost of capital.
A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).


== See also ==
== See also ==
* [[Adaptation Action Coalition]]
* [[Capital rationing]]
* [[Adaptation communications]]
* [[Discounted cash flow]]
* [[Business Ambition for 1.5C]]
* [[Internal rate of return]]
* [[Carbon-neutral]]
* [[Investment appraisal]]
* [[Climate-related disclosure]]
* [[Present value]]
* [[COP26]]
* [[Residual theory]]
* [[Emissions]]
   
* [[Environmental concerns]]
* [[ESG investment]]
* [[Glasgow Financial Alliance for Net Zero]]  (GFANZ)
* [[Green bond]]
* [[Green Bond Principles]]
* [[Greenhouse gas]]
* [[Insurance company]]
* [[Nationally determined contribution]]
* [[Net zero]]
* [[Net-Zero Asset Managers initiative]]  (NZAM)
* [[Net-Zero Asset Owner Alliance]]  (NZAOA)
* [[Net-Zero Banking Alliance]] (NZBA)
* [[Paris Agreement]]
* [[Paris Aligned Investment Initiative]] (PAII)
* [[Pension fund]]
* [[Principles for Responsible Investment]]  (PRI)
* [[Principles for Sustainable Insurance]]  (PSI)
* [[Race To Zero]]
* [[Resilience]]
* [[Road to Zero]]
* [[Transition]]
* [[Underwriting]]
* [[United Nations]]
* [[United Nations Environment Programme]] (UNEP)
* [[United Nations Environment Programme Finance Initiative]]  (UNEP FI)
* [[United Nations Framework Convention on Climate Change]]
* [[Zero emissions]]
 
 
==External link==
*[https://www.unepfi.org/net-zero-insurance/ About the NZIA]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Compliance_and_audit]]
[[Category:Ethics]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]

Revision as of 14:20, 23 October 2012

(NPV). 1. The total present value of all of the cash flows of a proposal - both positive and negative. For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.

For example a project requires an investment today of $100m, with $120m being receivable one year from now.

The cost of capital (r) is 10% per annum. The NPV of the project is calculated as follows:

PV of Time 0 outflow $100m = $(100m) PV of Time 1 inflow $120m = $120m x 1.1-1 = $109.09m NPV = -$100m +$109.09m = +$9.09m

2. In simple Net Present Value analysis the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected. So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.

However this assumes the unlimited availability of further capital with no increase in the cost of capital. A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).

See also


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