Sustainable finance and ESG investing

- Finance as usual (shareholder value theory): traditional tools to analyze stocks, bonds, and their portfolios
➡️Basics of fundamental analysis of stocks and estimating their financial value
➡️Basics of bond and credit risk analysis
➡️Basics of portfolio performance and risk analysis
- From shareholder value to sustainable finance: theory, approaches, and ongoing debate
➡️Finance as usual and Milton Friedman
➡️Enlightened shareholder value
➡️Stakeholder value (Triple Bottom Line)
➡️Pieconomics and common good value: Principles of materiality, comparative advantage, and multiplication
- Estimating social and environmental values
➡️Determining relevant social and environmental issues: the concept of materiality
➡️Quantifying social and environmental impacts
➡️Monetizing social and environmental impacts: the concept of shadow prices
➡️Discounting social and environmental impacts: the social discount rate
- Externalities and internalization
➡️Pricing externalities
➡️How to internalize social and environmental externalities into the financial value
➡️The concept and estimation of integrated value
- Social and environmental risks
➡️Risk forms: physical, transition and litigation risks
➡️Incorporating social and environmental risks into the cost of capital: multifactor pricing models
➡️The cost of integrated capital
➡️The impact of social and environmental risks on bond valuation and credit risk
- Sustainable financial products
➡️Green bonds
➡️Social bonds
➡️Sustainability-linked bonds
➡️Social impact bonds
- Integrating ESG issues in equity investment strategies
➡️Negative screening, integration, best-in-class, impact investing, and other strategies
➡️Is sustainability a source of higher investment performance? Evidence from ESG funds’ performance and risk
- The role of a firm’s corporate governance for creating long term value
➡️Optimizing executive and employee compensation
➡️Investor engagement: the role of hedge funds; mutual, pension, and index funds
➡️Incorporating sustainability into the board of director and internal committees
➡️Investment coalitions for sustainability: PRI and other initiatives
- Measuring and disclosing a firm’s sustainability
➡️Common metrics and Integrated Reporting
➡️ESG data providers: scores and rating
➡️Pros and cons of ESG ratings
➡️Sustainability reporting standards: IFRS S and ESRS
- EU Regulation on sustainability
➡️Taxonomy (Regulation (EU) 2020/852)
➡️Non-Financial Reporting Directive (2014/95, NFRD) and Corporate Sustainability Reporting Directive (2022/2464, CSRD)
➡️Sustainable Finance Disclosure Regulation (2019/2088, SFDR)
➡️Greenwashing: supervising sustainability issues
- Firm performance and sustainability: Empirical evidence
- The bottom line: conclusions, proposals, guidelines, and challenges of tomorrow’s sustainable finance

The course requires basic knowledge of firm management, balance sheet and investment analysis

Textbooks

a) Schoenmaker, D., & Schramade, W. (2023), Corporate finance for long-term value, Springer
b) Edmans, A. (2021). Grow the pie: How great companies deliver both purpose and profit, updated and revised version. Cambridge University Press
c) Schoenmaker, D., & Schramade, W. (2018). Principles of sustainable finance. Oxford University Press.

Detailed outline of chapters and sections for each book will be explained during the course

Recommended readings

- Barber, B. M., Morse, A., & Yasuda, A. (2021). Impact investing. Journal of Financial Economics, 139(1), 162-185.
- Berg, F., Koelbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315-1344.
- Bolton, P., & Kacperczyk, M. (2021). Do investors care about carbon risk?. Journal of financial economics, 142(2), 517-549.
- Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics, 142(2), 499-516.
- Gibson Brandon, R., Glossner, S., Krueger, P., Matos, P., & Steffen, T. (2022). Do responsible investors invest responsibly? Review of Finance, 26(6), 1389-1432.

The course will be taught by frontal lessons

Attending lessons is not mandatory but strongly encouraged

Knowledge will be assessed through oral exam

- Finance as usual (shareholder value theory): traditional tools to analyze stocks, bonds, and their portfolios
➡️Basics of fundamental analysis of stocks and estimating their financial value
➡️Basics of bond and credit risk analysis
➡️Basics of portfolio performance and risk analysis
- From shareholder value to sustainable finance: theory, approaches, and ongoing debate
➡️Finance as usual and Milton Friedman
➡️Enlightened shareholder value
➡️Stakeholder value (Triple Bottom Line)
➡️Pieconomics and common good value: Principles of materiality, comparative advantage, and multiplication
- Estimating social and environmental values
➡️Determining relevant social and environmental issues: the concept of materiality
➡️Quantifying social and environmental impacts
➡️Monetizing social and environmental impacts: the concept of shadow prices
➡️Discounting social and environmental impacts: the social discount rate
- Externalities and internalization
➡️Pricing externalities
➡️How to internalize social and environmental externalities into the financial value
➡️The concept and estimation of integrated value
- Social and environmental risks
➡️Risk forms: physical, transition and litigation risks
➡️Incorporating social and environmental risks into the cost of capital: multifactor pricing models
➡️The cost of integrated capital
➡️The impact of social and environmental risks on bond valuation and credit risk
- Sustainable financial products
➡️Green bonds
➡️Social bonds
➡️Sustainability-linked bonds
➡️Social impact bonds
- Integrating ESG issues in equity investment strategies
➡️Negative screening, integration, best-in-class, impact investing, and other strategies
➡️Is sustainability a source of higher investment performance? Evidence from ESG funds’ performance and risk
- The role of a firm’s corporate governance for creating long term value
➡️Optimizing executive and employee compensation
➡️Investor engagement: the role of hedge funds; mutual, pension, and index funds
➡️Incorporating sustainability into the board of director and internal committees
➡️Investment coalitions for sustainability: PRI and other initiatives
- Measuring and disclosing a firm’s sustainability
➡️Common metrics and Integrated Reporting
➡️ESG data providers: scores and rating
➡️Pros and cons of ESG ratings
➡️Sustainability reporting standards: IFRS S and ESRS
- EU Regulation on sustainability
➡️Taxonomy (Regulation (EU) 2020/852)
➡️Non-Financial Reporting Directive (2014/95, NFRD) and Corporate Sustainability Reporting Directive (2022/2464, CSRD)
➡️Sustainable Finance Disclosure Regulation (2019/2088, SFDR)
➡️Greenwashing: supervising sustainability issues
- Firm performance and sustainability: Empirical evidence
- The bottom line: conclusions, proposals, guidelines, and challenges of tomorrow’s sustainable finance

The course requires basic knowledge of firm management, balance sheet and investment analysis

Textbooks

a) Schoenmaker, D., & Schramade, W. (2023), Corporate finance for long-term value, Springer
b) Edmans, A. (2021). Grow the pie: How great companies deliver both purpose and profit, updated and revised version. Cambridge University Press
c) Schoenmaker, D., & Schramade, W. (2018). Principles of sustainable finance. Oxford University Press.

Detailed outline of chapters and sections for each book will be explained during the course

Recommended readings

- Barber, B. M., Morse, A., & Yasuda, A. (2021). Impact investing. Journal of Financial Economics, 139(1), 162-185.
- Berg, F., Koelbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315-1344.
- Bolton, P., & Kacperczyk, M. (2021). Do investors care about carbon risk?. Journal of financial economics, 142(2), 517-549.
- Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics, 142(2), 499-516.
- Gibson Brandon, R., Glossner, S., Krueger, P., Matos, P., & Steffen, T. (2022). Do responsible investors invest responsibly? Review of Finance, 26(6), 1389-1432.

The course will be taught by frontal lessons

Attending lessons is not mandatory but strongly encouraged

Knowledge will be assessed through oral exam