The role of benchmark technology in sustainable value analysis

Authors

• Timo Kuosmanen MTT Taloustutkimus, Luutnantintie 13, 00410 Helsinki
• Natalia Kuosmanen Department of Economics and Management, University of Helsinki, P.O. Box 27, 00014 University of Helsinki, Finland

DOI: https://doi.org/10.33354/smst.76956

Keywords:

data envelopment analysis, eco-efficiency, opportunity cost, performance measurement, regression analysis, stochastic frontier analysis, sustainability

Abstract

Sustainable Value Analysis (SVA) [F. Figge, T. Hahn, Ecol. Econ. 48(2004) 173-187] is a method for
measuring sustainability performance consistent with the constant capital rule and strong
sustainability. SVA compares eco-efficiency of a firm relative to some benchmark. The choice of the
benchmark implies some assumptions regarding the underlying production technology. This paper
presents a rigorous examination of the role of benchmark technology in SVA. We show that Figge and
Hahn’s formula for calculating sustainable value implies a peculiar linear benchmark technology. We
present a generalized formulation of sustainable value that is not restricted to any particular functional
form and allows for estimating benchmark technology from empirical data. Our generalized SVA
formulation reveals a direct link between SVA and frontier approaches to environmental performance
measurement and facilitates statistical hypotheses testing concerning the benchmark.