Toward Sustainable Value Creation: Environmental Metrics and Regulatory Enforcement in the Recalibration of Project Finance Risk Models

This extended abstract of a DBA thesis addresses the deterministic way in which the Debt Service Coverage Ratio (DSCR) is computed in non-recourse project finance, which overlooks the joint behaviour of environmentally material risk drivers such as carbon-regulatory costs, energy prices, hydrologic stress and supervisory enforcement. It proposes DSCR-ER, an environmental- and regulatory-adjusted DSCR that treats coverage as a scenario-conditional random variable, combining a four-channel cash-flow decomposition, Gaussian and Vine copula dependence structures, a stochastic regulatory enforcement channel, Monte Carlo simulation and a tiered data-governance hierarchy. The framework is illustrated on two Spanish concession assets, the Barcelona Llobregat desalination plant and the Madrid M-45 shadow-toll motorway, testing whether assets that appear robust under deterministic appraisal show material probabilities of covenant erosion under modelled joint stress.