IÉSEG to strengthen its teaching in Sustainable Finance through its Grande École program in the next academic year

Finance plays a major role in allocating resources in the economy. According to traditional financial reasoning, investments are justified if they increase company’s profits without taking into account projects’ environmental or social costs. Sustainable finance, on the other hand, incorporates environmental, social and governance aspects in financial decision-making process to foster more long-term, sustainable growth in the economy.

In line with its VISION, which is to “empower changemakers for a better society” IÉSEG proposes a course dedicated to Sustainable Finance to its Grande École Program students. Maia Gejadze, professor of Finance at IÉSEG and developer of this course, gives us more information about it.

Can you please describe this new elective, its objectives and key topics that will be covered?

Maia: The new Sustainable Finance course will be offered as an elective to finance students studying in the “Asset and Risk Management” track of the Grande École Program’s Master. The objective is to review the global sustainability challenges (such as climate change mitigation and adaptation, pollution prevention, preservation of biodiversity, clean energy, responsible consumption and production, labour conditions, educational and health inequalities and others…) in line with UN Sustainable Development Goals and provide the fundamental knowledge required for our students to understand how finance can steer the sustainability transition.

©Barbara Grossmann

The course content is built on the understanding of the principles of integrated thinking and long-term value creation, incorporating both social and environmental factors (that were traditionally regarded as ‘negative externalities’). Our students will be invited to ‘rethink’ how business operates today and how they can deliver both ‘purpose and profit’.

Topics covered will include sustainable and responsible business models, sustainable asset management, sustainable banking, sustainable insurance and climate risk. While reviewing the current practices of imbedding sustainability in asset management, students will also receive a guest lecture from a?? senior project manager at Natixis, Mr. Eric Battini. He will introduce them to sustainable investment products including green and sustainable bonds and funds with environmental, social and governance (ESG) characteristics and discuss the successful integration of ESG factors in asset management.

The aim of the new course is to shed light on understanding how “finance can steer the sustainability transition”… Can you explain why?

Transition is a process that starts with the breakdown of an existing system and generally ends with the emergence of new, better alternatives. If we look at today’s financial system, we can clearly see the signs of certain transformative pressures. These include new accounting standards, integrated reporting, divestment campaigns from profitable fossil funds, emergence of new financing and investment options such as: crowdfunding, impact investments, cryptocurrencies, or the disruption and change that is driven by blockchain or fintechs. It is important that future investors, financial managers etc are effectively equipped to respond to market changes, technology, or regulatory changes.

What are the obstacles for transition to sustainable finance?

The course will look at many of the obstacles and opportunities including the need for systemic change and multistakeholder initiatives in reaching sustainability challenges.  Other issues (in the transition to sustainability finance) discussed throughout the course will include the lagging development of adequate financial assessment tools and the relatively high transaction costs of financing innovative, circular business models, that require collaboration throughout the value chain. Finally, we will address a key difficulty for the sector: a lack of awareness and unequal preparation and commitment around the globe to effectively tackle sustainability issues.

©Barbara Grossmann

In general, a successful transition to sustainable finance requires integrating the sustainability dimension in the financial decision-making process. From a portfolio management perspective, this means going deeper than buying and analysing an ESG dataset for a particular investment portfolio. Instead, investors should reflect on which are material ESG issues for the assets considered and how these material ESG issues affect the underlying business models, and their preparedness for transition.

Employing case studies on real companies with distinct positions in terms of sustainability challenges and reporting, students will study how to connect sustainability to business models, their competitive position, strategy and value drivers, to assess companies’ readiness for transition. The case studies will highlight the importance of data availability on sustainability reporting, as well as fundamental analysis in formulating final recommendations.

How is this elective in line with the School’s Vision “Empowering changemakers for a better society”?

The course nurtures the “growing the pie” mentality as described in Alex Edmans’ award winning book (Grow the Pie: How Great Companies Deliver Both Purpose and Profit) and is line with the School’s vision “Empowering changemakers for better society”. The pie-growing’, as opposed to ‘pie-splitting’, mentality views the value created by the businesses as expandable and not fixed over time. The goal therefore is not maximizing shareholders’ profits but growing value by focusing on the purpose of the business (providing value for society that includes all the stakeholders including employees, customers, suppliers, the government, the environment, etc). I believe the course will make a compelling case that maximizing the value for society is superior to maximizing profits, as the former eventually delivers higher and more inclusive value over time.

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