ESG investing cries out for trained finance professionals
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Finance students at NYU Stern School of Business learn about environmental, social and governance (ESG) investment with the help of hard cash as well as lectures. They invest real money through a teaching fund that is at the heart of an experiential learning course. But setting up an ESG portfolio proved to be an education for staff as well as students.
An array of ESG standards and metrics made the launch a time-consuming process. “Even once we’d started the fund and put the money in it, it took us at least a month before we bought our first stock,” says Anthony Marciano, a clinical finance professor at Stern, in New York City.
Prof Marciano teaches the course based on management of the Michael Price Student Investment Fund, a family of funds with a value of about $2m. “The other funds started from the get-go. With a value fund it’s easy to pick your benchmark,” Prof Marciano says. “But we ran into a lot of complexities [with the ESG fund] that we wouldn’t have had with the other funds.”
Finance academics and students are not alone in feeling perplexed. Over the past year, investors have poured money into stocks and portfolios with an ESG focus. Evidence shows that they perform well and may even weather global crises such as the coronavirus pandemic better than other funds.
But what is often described as an “alphabet soup” of acronyms denoting the different forms of ESG evaluation and reporting — from SASB and GRI to TCFD and GIIRS — leaves companies and asset managers, as well as finance professors, scratching their heads.
“Companies are sinking in a sea of too much data,” says Colin Mayer, professor of management studies at the University of Oxford’s Saïd Business School. “They are confused and irritated by the amount of information that they’re expected to provide.”
This makes it difficult to develop courses that cover ESG evaluation, says Prof Mayer. “One can teach the most widely used and accepted approaches,” he says. “But what is difficult to do in terms of designing a course at the moment is say: ‘This is the standard that will emerge as the one that is going to generally be applied.’ That level of clarity is not yet there.”
If the teaching of ESG investment evaluation is still evolving, so too is the inclusion of sustainable investing in core finance courses.
“There are very few finance programmes that include social responsibility, ESG and sustainability as dominant themes to be covered in all aspects of finance training,” says Bruno Gerard, who teaches ESG evaluation at BI Norwegian Business School, which is developing an MSc in sustainable finance.
When sustainable finance is taught, it is often through electives. Instead, it needs to be integrated into mainstream finance programmes, says Martina Macpherson, senior vice-president, ESG, at risk assessment firm Moody’s, who in 2018 was part of a UK government-led task force on social impact reporting.
“Otherwise we are creating subject matter experts in silos,” she says. “So it ultimately has to be in the core finance course.”
She adds that part of the problem is that until recently publications such as academic journals seldom included research on evaluating the social and environmental impact of sustainable investments. “In finance-led journals it’s changing,” she says. “But it’s very recent.”
This has proved a challenge for Norway’s BI in the development of its MSc in sustainable finance.
“When we were looking around for textbooks that we could use, we only found two or three,” says Prof Gerard. “And they don’t build on a very strong academic tradition.”
This may start to change through the efforts of initiatives such as the Network for Sustainable Financial Markets, of which Ms Macpherson is president.
“We’re looking at how to bring the next generation of sustainable finance leaders into the domain through education and through the forward-looking perspective of careers and opportunities,” she says.
Some courses are emerging from outside the business school sector. In April, for example the IIX Impact Institute — part of IIX, which was created to develop the world’s first listed exchange for impact investing companies — launched an online course called Measuring Impact for Sustainability.
Meanwhile, Prof Gerard believes other forces will accelerate the teaching of ESG evaluation in finance. “There is student demand for this,” he says. “But also in Norway all the asset managers come to us and say: ‘We have to run ESG funds, our clients want them, and we don’t have people who can run them.’ So there’s acute demand from the employer side.”
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