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Luis Raúl Rodríguez-Reyes

A Strategic Model for Sustainability based in DCF

This paper studies the relationship between sustainability and companies' financial performance and develops a strategic model to improve companies' financial results in sustainable scenarios. Three channels are identified: sustainability investment, financial markets, and revenue channels. Distinctive financial cash flows run through them, and their interaction and balance determine the financial result for the company that embarks on a sustainability transformation. Engaging in a sustainability transformation, a company failing to connect and balance these channels is destined for poor results in terms of profitability. The analysis indicates that when the gains for the risk reduction (the financial markets channel) surpass implementation costs (sustainability investment channel), the sustainability transformation is value-additive for the company. However, this may not be enough to ensure a higher payoff. In that case, the sustainable strategy must attract a positive cash flow from consumers (the revenue channel) to benefit the company. As necessary conditions, this strategy requires achieving high performance in CSR/ESG indicators and the involvement of other key stakeholders to improve the possibility of success for the company that has decided to go sustainable.