5. Sustainability‑Weighted Cost of Capital (SWACC)

A pivotal input in calculating user cost is the discount rate used to determine how much of today’s revenue must be saved to sustain future income. Corporate accounting typically employs a Weighted Average Cost of Capital (WACC) reflecting investors’ required return, whereas intergenerational equity implies using a much lower social discount rate. To bridge these perspectives, we define the Sustainability‑Weighted Cost of Capital (SWACC) as a weighted blend of the corporate cost of capital and a social rate:

\[ r_{\text{eff}} = (1-\lambda)\, r_{\text{corp}} + \lambda\, r_{\text{social}} \]

where \(\lambda\) (lambda) ranges from 0 to 1. When \(\lambda = 0\) the firm uses its traditional WACC; when \(\lambda = 1\) the firm fully adopts a social rate. A higher \(\lambda\) implies a lower effective discount rate and therefore a larger user cost set‑aside.