Giomaria Columbu

Large-scale transitions to eco-friendly vehicle fleets present complex capital budgeting challenges, requiring the integration of extensive operational data with financial modeling while balancing economic profitability and environmental sustainability. Traditional approaches often struggle to manage this complexity and quantify the inherent trade-offs. This study develops and applies an innovative integrated accounting-and-finance framework to evaluate the economic and environmental implications of green fleet transition projects, explicitly quantifying the trade-off between profitability and sustainability. Focusing on waste vehicle replacement of Iren Spa, a leading European multi-utility company, we employ the recently developed Split-Screen Approach, a unified accounting-and-finance framework grounded in the laws of motion and conservation. It automatically reconciles pro forma financial statements and generates internally consistent valuation metrics, eliminating the manual adjustments and inconsistencies of traditional models. Its built-in diagnostic checks and scalability for highly complex datasets overcome the manual adjustments and inconsistencies inherent in traditional financial models. We process 2303 inputs across multiple “green” scenarios. This methodology integrates an Engineering Model, describing fleet evolution, operating costs, and CO₂ reduction, with a HookUp Model, which serves to transform scenarios into well-defined projects. The latter model is then integrated with a Financial Model that generates pro forma financial statements, incorporates financing and payout policies, and assesses economic profitability through Net Present Value (NPV) and consistent accounting rates of return. Together, these elements form a robust framework for managing complex data integration and analysis. Our research reveals a fundamental trade-off: enhanced environmental sustainability (measured by Net Green Value, NGV), which quantifies CO₂ reduction, is achieved at the expense of economic profitability, measured by NPV. This financial sacrifice is captured by the Net Value Curve, a Pareto frontier, while the NPV-to-NGV ratio provides “shadow prices” for CO₂ reduction, revealing the financial cost per unit of sustainability gained. Based on 21 project scenarios and additional sensitivity analyses on financial inputs and energy prices, the results confirm a decreasing relationship between NGV and NPV. This study makes three main contributions: (1) it demonstrates the practical application of the Split- Screen Approach for capital budgeting under complexity, (2) it introduces the Net Value Curve framework as a useful tool for visualizing and quantifying the trade-off between profitability and sustainability, (3) it provides managers and policymakers actionable insights, supporting more informed decisions in green fleet transition planning where economic and environmental objectives may conflict. The findings provide managers and policymakers with a rigorous and transparent accounting-and-finance framework that enhances the reliability of capital budgeting decisions compared with traditional financial modeling, while offering a Paretian frontier for evaluating environmental trade-offs.

Our study introduces an integrated engineering-and-finance system designed to assist business decision-makers in optimizing shareholder value and environmental sustainability. Our focus centers on addressing Iren Ambiente’s challenge of transitioning to eco-friendly fuel policies for waste vehicles. While engineering and finance approach capital budgeting projects from different angles, often overlooking each other's viewpoints, our paper aims to harmonize their traditionally separate perspectives and emphasize their interdependence. To achieve this, we construct a comprehensive engineering model encompassing 2,303 inputs across five distinct “green scenarios” for vehicle replacements. Its outputs feed into a robust financial model assessing economic profitability across the five green policies. Our findings unveil a trade-off between environmental sustainability and economic value creation, portrayed by a Pareto frontier called the Net Value curve. This curve combines Net Present Value (measuring value creation) and Net Green Value (measuring CO2 emission reduction), quantifying the value the company must forgo to increase its environmental sustainability. These insights offer valuable guidance for strategic decision-making. Furthermore, the NPV-to-NGV ratio provides "shadow" prices for CO2 reduction, indicating the precise financial sacrifice for each green scenario. To further investigate the functional relation between NGV and NPV, we expand our analysis from 5 to 21 scenarios. This analysis confirms a strictly decreasing relation between NGV and NPV, and reveals an increasing marginal rate of substitution, supported by a degree-2 polynomial regression.