Asset managers are faced with increased pressure to account for sustainability when managing their portfolios. However, these finance professionals receive only little training on these topics in business schools. In September 2020 at the UN Global Compact “United Business for a Better World” event, a panel discussion titled “New aspirations for global impact: SDG education and training of future finance professionals” aimed to explore what Finance faculty can and are doing to change this. I spoke with one of the panelists, Basma Majerbi, Associate Professor of finance at Gustavson School of Business, University of Victoria in Canada about why this is important and what she is doing in her classroom.
Why is it important that Finance faculty embed the SDGs and sustainability more broadly into their courses?
The SDGs offer a simple framework that is increasingly being adopted by organisations and investors, both in the public and private sectors, to measure their impact on society and the environment. One of the biggest challenges in reaching the ambitious goals by 2030, is to mobilise private capital through innovative finance solutions and bridge the massive funding gap to meet the SDGs. Business schools need to equip their students, future finance professionals, with new skills and mindsets to drive financial innovation for positive social and environmental outcomes. It does not matter where students will end up working, companies will expect their financial and investment analysts to be able to integrate and assess ESG and SDG elements in all aspects of financial decision making, whether they choose to work in “sustainable” finance or not. The field is evolving very quickly and it’s important to have the skills to collaborate on such topics both within their own investment teams and with others in- and outside the organisation.
Are students asking for this?
I think students are very interested in learning more on sustainable finance topics and are actually demanding more. A recent example in Canada showing how desperate students are for more sustainability content in business education is the launch of this Manifesto demanding that business schools do more to provide students with much needed skills for their future. Another good example of students’ interest in sustainable investing is the big role they have and are still playing in pushing universities to divest from fossil fuel and decarbonising their endowment portfolios. More than 180 educational institutions around the world committed to partial or full divestment from fossil fuel, all thanks to students-led campaigns.
What topics in particular do you feel are important to cover?
I personally find impact investing very important to cover as a topic in any finance class, from the intro level to more advanced ones. It is also a very attractive and engaging topic for students. Standard finance models that we have been teaching for over half a century emphasise two important decision factors: risk and return. We do not talk about impact. I think every financial decision should include an assessment of risk, return and impact. Impact on people and the planet, now and in the future. If we talk about that as an essential part of the framework for financial decision-making, then we could truly make a positive difference. The SDGs offer such an attractive and easy to understand context for this paradigm shift. They highlight the challenges and the opportunities we have as a society to shift capital where it is most needed while still delivering fair returns.
The other topic that I think we should absolutely talk about in finance classes is climate change and the risks and opportunities this creates to businesses and investors. There are physical risks and transition risks that will affect every business in every country, so how can we keep teaching topics like capital budgeting or portfolio investing without at least some discussion about how climate change may affect the values of the assets considered in these investment proposals? I think this is a very important topic to bring to finance classes.
How do you bring the SDGs/sustainability into your courses?
I actually did not have any sustainable finance training during my studies, but when I joined Gustavson, I developed a passion for sustainability, learning from colleagues in other disciplines and being inspired by our school’s unique educational philosophy that values integration and sustainability as two key pillars. Over the past decade, I have always looked for new opportunities to integrate sustainability concepts into various finance courses through enrichment assignments and team projects in addition to covering standard core finance topics. However, this year, the redesign of our MBA in Sustainable Innovation program offered an excellent opportunity to revamp my MBA finance course to focus on “Finance for Impact”. This is actually the only finance course in the program, so the equivalent of an intro finance course in standard MBA programs. Many students come from various backgrounds and may have never taken a finance course in their undergraduate studies. I have to blend in basic finance concepts with a sustainability/SDGs lens. Some examples of assignments that students are working on this term include:
- Build a socially responsible investment (SRI) portfolio using a simulation platform with real time stock prices by screening companies based on ESG criteria. This is actually an integrated assignment that requires students to use concepts from six courses including finance, accounting, foundation of sustainability, economics, data-driven decision making and designing innovative organizations.
- Do a company valuation based on long-term value creation looking at its business model, sustainability and impact (e.g. which of the SDGs does the company help achieve). Then use this information as basis for ESG integration into a DCF model.
- Write a research briefing paper on topics related to climate finance (a long list of topics from discussing innovative green finance instruments, green recovery policies post-Covid 19; researching impact measurement frameworks, ESG consideration in Fintech, financing biodiversity, Green infrastructure financing, etc.
I co-authored a case study on a Canadian impact investing indigenous fund and used it with one of my colleagues and case co-author in class to discuss the topic of impact investing and learn from indigenous worldviews about measure impact in community investments.
I also invite practitioners or subject matter experts into the classroom. I had a guest speaker from a top Canadian pension fund to talk about climate scenarios and their integration into portfolio analysis and reporting. Another example that may look far away from an intro finance course was hosting a colleague from the school of public administration to talk about her work on planetary health, which integrates the SDGs in evaluation of public policy intervention. The idea was to discuss whether we could learn something from this for assessing project proposals in the private sector.
I have weekly online discussion forums where I usually share an article on a sustainable finance topic and ask students to share their thoughts on the author’s position. Examples from this term include an article on Catastrophe bonds asking if students would view this as ESG investing or if this would be greenwashing. One forum was on the role of investors to tackle racial injustice. Another week I posted an example of an innovative green bond and asked students to post one as well and answer a list of questions about their unique characteristics. I also asked students to comment on the use of a shadow carbon price in NPV analysis based on some case examples I used in class.
What do you think are the challenges for finance faculty in embedding this into their courses?
We explored this topic during the panel, hosted by Dr. Mette Morsing and moderated by Professor Andreas Rasche, Dean of MBA, Copenhagen Business School, included myself, Costanza Consolandi from University of Siena (Italy) and Dave Chen from Kellogg School of Management, Northwestern University (USA) provided some insights on this as well. This is a field that is transforming very quickly, so including these topics requires a much greater effort to update course material to remain relevant and current. I feel this is an area where academics are a bit behind compared to practitioners, especially in teaching. Research is catching up faster, but not in teaching of core finance topics, which remain mostly focused on theories and models developed decades ago. This means that even before they learn about new tools we need a shift in mindset. Too oftenacademics, like many investment professionals and business leaders, are still stuck in the “tradeoff mentality” where doing good for society or the environment must be balanced against profitability. But in fact, evidence shows that sustainable finance is good for business; it creates long-term value.
Students come to finance class ready to learn how to use money for purpose so we need to integrate what finance professors do across different management disciplines at the business school. As Constanza put it, “The real world comes first. It’s important for our students. Sustainability is a new lens and all faculty should use this new lens.” Dave Chen agreed, “We’ve won the hearts and minds momentum of the students; now it’s necessary to convince the deans and chairs that this is mainstream.”
Any thoughts on how to overcome these?
I think one big challenge is that traditional academic textbooks are very limited when it comes to sustainable finance or impact investing. However, there are so many resources and examples developed by practitioners that can be easily used in our classes. One silver lining of the pandemic is the extensive use of webinars in all fields and I cannot tell you how many I’ve seen on the topic of sustainable finance, investing for the SDGs, Paris-aligned investing, climate-related financial risks, you name it. It’s hard to keep up. So, there is no excuse for us professors not to learn more on this from a practitioner’s point of view to inform both our teaching and research. But of course, we need the right incentive structure to do so. This can add a huge burden on professors already under pressure to meet high standards for tenure and promotion. Some support from the leadership would go a long way. In my school, I’m lucky that we value sustainability, which is one of our core pillars, so the work culture is very favorable and supportive, but I have to admit it’s tough to keep up and renew teaching material constantly as the field evolves.
With the increasing use of technology, we can overcome many obstacles by inviting guest speakers and experts in select topics that we’re not comfortable yet teaching to talk to our students. I find guest speakers bring a lot of value to make our classes inspiring and more practical.
What are some resources that you find are useful for finance faculty?
The impact and sustainable finance faculty consortium is a great network to join and benefit from all the resources available there (shared by faculty members teaching various topics in sustainable/impact finance). David Chen talked about that at the panel. Here in Canada, the Institute for Sustainable Finance at Queen’s university launched the Canadian Sustainable Finance Network (CSFN). I am a member of the steering committee of CSFN and one of our goals is to facilitate sharing of teaching resources on sustainable finance, in addition to research collaboration and outreach.
Any final words of advice for other faculty exploring this topic?
Sustainability concepts are most powerful if they are the first thing students are exposed to in a programme or a course. Also, the message is strengthened and the lessons become more useful if sustainability issues are discussed across courses and subjects, so integration is very important and helpful. I did some joint assignments with colleagues teaching supply chains, strategy and other courses and they usually provide for an excellent learning tool. Students get to think about a topic from various perspectives. To help develop a twenty-first-century attitude, it is crucial that educators introduce tools, frameworks and models into foundational courses in finance. Limiting those to select students taking elective courses will not have the same benefit.
Jump in and introduce the concepts even if they are not in your textbook, including ESG, SDG issues and push students to think about “impact”. Bring in guest speakers if you’re not comfortable teaching some topics. If you can’t include sustainable finance topics in the syllabus, engage student off-class through online discussion forums on sustainable finance issues and get them to reflect on that and exchange ideas. We are faced with ever increasing challenges and wicked problems in the world. If this is not relevant enough to help our students think about these issues and gain the necessary finance knowledge to contribute to solving them, then I think we as educators won’t be doing our jobs. We become irrelevant.