CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Green Initiatives
Vindhya Power Ltd's board is asked to approve a solar rooftop project costing ₹90 lakh that will save ₹15 lakh per year in power cost, with no other cash effect. A director argues that the project is justified only if it reduces emissions. Which view is most sound for the company Secretary to advise?
The payback of six years, from 90 lakh divided by 15 lakh annual savings, is a relevant input. The board should weigh it alongside emission benefits and the company's ESG policy. Renewable projects still need evaluation, and neither ignoring costs nor demanding one-year payback is sound.
- AApprove only on emission grounds and ignore the cost data
- BThe simple payback of 6 years is a relevant input, to be weighed with environmental benefits and the board's stated ESG policyCorrect
- CReject since payback exceeds one year
- DApprove automatically as renewable projects need no financial evaluation
Explanation
Simple payback is 90/15 = 6 years. A board should weigh this financial measure together with environmental benefit and policy goals in an informed decision. Ignoring costs or demanding a one-year payback are both unsupported, and no project is exempt from evaluation.
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