Sustainable finance and environmental, social and governance investment has captivated financial markets in recent years as investors have poured money into stocks and portfolios with an ESG focus.
The shift stems not just from a sense of moral duty to accelerate the transition to a more sustainable and equitable economy, but evidence shows such investments perform well and may even be more resilient than other funds.
Sustainable finance and ESG investing is indeed a growth area, but there is still a great deal of uncertainty, so executive education programs have stepped in to help. A number have cropped up in recent years, including the University of Edinburgh Business School’s Climate Change Risk in Finance course, and the Sustainable Investing course at the Smith School of Business in Canada.
Germany’s Mannheim Business School puts on the Quantifying Sustainable Investment program and, in the UK, the Oxford Impact Investing Program is available at the Saïd Business school.
Trained professionals needed
Executive education representatives say the nascent sector is crying out for trained professionals, suggesting an opportunity for financiers to stake out territory.
“The SEC [Securities and Exchange Commission, a US government agency] recently released an investor alert stating concerns, amongst other issues, about the lack of expertise behind many of the ESG offerings today,” says Professor Tensie Whelan, director of NYU Stern’s Center for Sustainable Business.
“Investors and asset managers will need to get smart about understanding the materiality and impact of ESG, as well as how it is related to financial performance,” she says.
Stern, in New York City, runs the Sustainable Finance and ESG Investing course. Executives learn what constitutes sustainable business, finance and ESG investing — and how it is driving improved performance along with the risks and opportunities it creates.
Participants also explore hands-on tools for assessing the financial value created by corporate sustainability strategies, and strategies for ESG investing.
Stern integrates real-world experience into the course too. “We have the students work on cases in small groups and then work together, also in small groups, to create an ESG investment product using one of a variety of sustainable investing strategies we share with them,” says Whelan.
Demand among executive participants is extremely high, she says, because it is becoming very clear that ESG issues will be affecting corporate performance and viability and thus investor performance for years to come.
Dirk Schoenmaker, professor of banking and finance at the Rotterdam School of Management, agrees. “There is eagerness in the financial sector to include sustainability,” he says. “So the motivation is there, but executives don’t how to do it.”
The big appeal of training, says Schoenmaker, is that RSM provides the tools to integrate sustainability into day-to-day financial operations: equity valuation, bond valuation and credit analysis tools.
RSM, in the Netherlands, runs the Sustainable Finance executive education course, on which participants learn practical tools for implementing sustainable investing and lending, and explore the change management issues.
“There is much confusion about what works and how to implement new regulations,” says Schoenmaker. “The course provides clear guidance on best practices on setting company purpose and integrating sustainability into investment valuation and lending proposals.”
The key learning outcomes are to understand not only climate change but also biodiversity and social inequality and to integrate sustainability into investment and banking valuation assessments, along with making the transition happen in your own organization.
“We get real-world experience into the course by working on real-life cases in the classroom and [attracting] speakers from sustainable finance,” Schoenmaker says.
Course options currently limited
A number of business schools such as RSM and Stern recognize their responsibility to help the financial sector contribute or even speed up the transition to a sustainable economy. But course options remain limited currently, which reflects just how nascent the sector is with consensus on best practice still illusive.
One of the key challenges is how to measure and assess the impact of sustainable investments, with an array of competing standards. This makes ESG a tricky topic for business schools to teach.
“The trickiest part about ESG is that there is no one-size-fits-all [approach],” says Whelan. “In financial accounting, there are a basic number of key metrics that are the same for everyone. For sustainability, the issues vary by industry and financial impact is dependent on execution as well as reporting.”
In other words, she says, reporting that you have a chemical policy is going to have less impact on your bottom line than implementing an innovative new technology that drastically reduces chemical use and waste. But the reporting standards don’t currently track that type of difference.
Schoenmaker concurs. “The competing standards create a lot of fuss and have the danger of greenwashing,” he says. “We therefore need to go back to the basic concepts of sustainable investing. If you get the core concepts right, you are able to distinguish between good and less helpful standards, and steer your way in the measurement landscape.”