Teaching ESG, not as easy as ABC

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More business schools and higher education institutions are integrating sustainable finance into their curricula. However, a lack of standardisation in a rapidly evolving sector is just one of the challenges that make it difficult to teach. We speak to some of the professors in Geneva shaking up the classroom.  

When Antoine Mach began teaching at the Geneva School of Business Administration (HEG) 10 years ago, sustainable finance was still perceived as a “fuzzy” concept in the corporate world – let alone in education and research.

For finance professors, Mach says, it was a “new transdisciplinary concept that did not really fit into existing theories and categories in finance”.

Today, as investors pour record amounts of money into environmental, social, and governance (ESG) strategies, as regulators try to define common standards, and as companies make even more pledges to play their part in fighting climate change, sustainability has been brought more sharply into focus.

Courses on offer to form the next cohort of finance professionals and managers have evolved and multiplied from mainly short, elective or executive programmes to being taught more broadly at an undergraduate and master’s level. Research has also progressed from a subject that tended to be overlooked in the top academic journals.

Mach, who authored a study in 2014 on the state of sustainable finance education, tells Geneva Solutions:  “At that time, sustainable finance was really an applied field with some theories but it was not really standardised. It was mostly practitioners who had the knowledge. This has changed and nowadays you see real academics, professors, and researchers really devoting time and resources to the field.”

But even today, Mach – who co-launched a certificate of advanced studies (CAS) in sustainable finance at HEG four years ago – says more needs to be done to integrate ESG issues into educational programmes.

“Sustainable finance is still a relatively young topic. It's not really standardised and there are different approaches, rating methodologies, and criteria that are being used.”

The European Union’s introduction of new landmark rules aimed at boosting standards of ESG reporting, and similar efforts by other countries worldwide, have sought to bring more order and transparency into the sector – the effects of which should also feed through into business and finance education.

“In the future, universities will consider that the concept of sustainable finance should also be further integrated into their programmes, but that takes time,” Mach adds.

Still, the transition is already happening. In the Geneva region alone, several higher education institutions have introduced sustainability courses into their master’s programmes this autumn, including the University of Geneva (UNIGE), the Graduate Institute, and Lausanne’s IMD Business School.

Finance institutions have also been seeking to promote research in the field, with the Geneva-based bank Lombard Odier announcing a new research collaboration with the University of Oxford last year.

“It’s a trend now to surf the wave in education,” says Professor Rajna Gibson, deputy director of UNIGE’s Geneva Finance Research Institute (GFRI).

“And in some sense, it’s normal because banks, and the industry as a whole, are starting to look for more specialists with ESG training.”

At the same time, she says there’s a danger of greenwashing permeating into sustainable finance education and of people “jumping on board” the trend rather than practicing those values.

“Like when people put women on boards of companies – do they do it because they really believe that women should be on boards or do they do it because at the time it was a good marketing device?”

Sustainable finance as an area of research

One area that has rapidly evolved over the last five years is research dedicated to sustainable finance, says Gibson.

“When we started GFRI it was hard to attract high-quality papers in the field.  Now, all the top journals are publishing research in sustainable finance. And that's good because it says that now, researchers and academics who engage in this field are treated with more respect than before.”

Hired in 2009 as director of the GFRI, Gibson claims the institute was one of the early movers in sustainable finance research.

At the time the world was reeling from the global financial crisis and the focus was on governance and ethical concerns, with climate issues yet to gain traction in traditional finance.

“Very early on we tried to have a reflection on what good finance can do for society because of course, after the subprime crisis, finance and the banking industry had been shaken and there was a lot of bad connotation around it,” she tells Geneva Solutions.

Gibson argues that the paradigms that once characterised traditional finance – that people are selfish and only motivated by profit  – are gradually shifting to a new set of principles that recognise that people can be altruistic and that they want to do well.

“Education is being driven by the trend we have seen in the financial services sector over the last 10 years – this notion of doing well by doing good – and by the growing awareness now of course, of climate change risks,” Gibson adds.

Human rights in sustainable finance education

While governance and environmental issues have gradually become more integrated into business and finance education, the social dimension – namely human rights – is still sorely lagging behind, says Dorothee Baumann-Pauly, a professor at UNIGE.

“We need to figure out what is the human rights component of marketing, operations management, and sustainable finance. And unfortunately, right now, those sustainable finance classes fall short of those social aspects, including human rights,” says Baumann-Pauly.

“The practice at this point almost exclusively focuses on the environment and climate change targets, which are easier to quantify.”

Still, research and teaching in business and human rights has risen in prominence at global academic institutions, with some 50 business schools including UNIGE forming a networking alliance for human rights in 2017. Two years later, UNIGE launched the first human rights centre at a business school in Europe, led by Baumann-Pauly.

This autumn, the university’s School for Economics and Management (GSEM) relaunched its master of science programme as a master in responsible management with the option to specialise in business and human rights.

A dual-track approach, where responsible management programmes are taught in parallel to management programmes, is not a viable way forward, she says. “We don't want to produce anything other than responsible managers.”

Thinking like an economist

ESG or sustainability issues that were once allotted to specialist finance courses have also been gaining broader academic attention.

In September, the Graduate Institute introduced for the first time a track in sustainable finance and development within its international economics master’s programme. The university also plans to launch a complete master in sustainable finance and economics next year.

Professor Nathan Sussman, program director, argues that economics training offers a different and important approach to issues such as social responsibility, inclusion, and how to assess the impact of sustainable investments.  “It's applying these problem-solving skills to a different problem,” he told Geneva Solutions.

Sussman says professors are having to “retool themselves” to teach on issues that have never previously been researched, and for which little literature exists. The two new sustainable finance courses are something of an experiment, given that there was no precedent for them.

However, the methods remain the same. “We're not rewriting economics. For the most part, we’re taking the same methods and applying them to sustainable finance”.

Finding a common language

Sustainable finance education is rapidly evolving, catering to both academics and professionals in search of skills to apply across very different careers. However, for Mach, there is still more that needs to be done to promote education on a broader level.

“I think there is a lot of education to do in society at large, not only with students but to demonstrate the usefulness of sustainable finance,” he says. “There are still a lot of skeptics out there.”

Patrick Schirman, previously a student on Mach’s course and now chief executive of Norsia, a fintech company that develops tools to assist financial advisors in matching and leveraging investors’ sustainability goals, agrees.

Within his network, he sees more and more people wanting exposure to ESG.  “There is a growing interest but also a growing awareness of the problem. And this is where I think education comes into place.”

“You have a lot of people who are talking about ESG without knowing what they're talking about. And I think it's a bit of a problem because it gives a wrong image of sustainable finance to the general public.”

Responsible investing, climate finance, impact investing, sustainable finance, ESG investing; the definition of sustainable finance remains elusive – as are the standards for companies disclosing their sustainability. The uncertainty, and lack of standardisation also overshadows the education sector,  concludes Gibson.

“Until we all speak a common language – and even between academia and the professional sector it is very different –  it's going to be challenging to set firm grounds on the education that we provide to the students.”