Discussion paper

DP16074 Decision rules for corporate investment

We investigate decision rules for corporate investment by designing a company value frontier. This company value frontier allows for balancing financial value and social and environmental impact. Different value concepts – ranging from shareholder value to shareholder welfare and integrated value – are analysed resulting in varying preferences for social and environmental impact or value. Next, these preferences are incorporated in investment decision rules. The traditional net present value (NPV) rule optimises only financial value. We propose new decision rules which include a preference for social and environmental value without neglecting financial value. In addition, we derive a tilting factor for companies that not only want to optimise new investments, but also want to correct past underinvestment in social and environmental value.


De Adelhart Toorop, R, D Schoenmaker and W Schramade (2021), ‘DP16074 Decision rules for corporate investment‘, CEPR Discussion Paper No. 16074. CEPR Press, Paris & London. https://cepr.org/publications/dp16074