Sustainable Finance

Course Director: Jan Starmans

Purpose

Firms and their investors face increasing demands from governments and other stakeholders to reduce their negative social and environmental impact. Accordingly, sustainable investments that take into account environmental, social, and governance (ESG) considerations have grown significantly in recent years. This is the field of sustainable finance. The course uses real-world cases to study how firms and their investors address these increasingly pressing demands. The aim is to equip students with the tools to assess and respond to the challenges that firms and investors face. In doing so, the course relates to several important topics in finance. The broader aim of the course is to critically reflect on the role of business and finance in society.

Content

In the first part of the course, we examine the role of sustainability in firms' decision-making. Cases in this part focus on trade-offs between profits and sustainability, and their impact on stakeholders, including employees, customers, and society. In the second and main part of the course, we study how investors incorporate sustainability considerations into their investment strategies. We compare different responsible investment criteria and different types of direct sustainable investor engagement. In particular, we examine the role of various types of investors, including mutual funds, private equity funds, and individual investors, in sustainable investing.

Format & Structure

This course employs the case method, focusing on in-depth discussions of real-world situations. Additionally, the course includes several lectures to complement the case studies, as well as presentations from guest speakers with expertise in areas related to the case discussions.

Case discussions aim to apply concepts and techniques to complex real-world situations. Each case will be available for download before each class. Students should prepare answers to assignment questions, which will be posted alongside the case.

For this to be a rewarding learning experience, regular class attendance and case preparation are essential. Students should come to class well prepared and ready to address the questions in the case assignment. Students are encouraged to work together to prepare the case. When in class, each student is expected to be able to explain and motivate their own views.

Unlike most other finance courses, this course covers a very young field within finance. Sustainable finance remains a field with more questions than answers. As a result, we will encounter many ambiguities during the course that researchers, policymakers, and industry practitioners have not yet resolved. This course aims to enable you to make sound decisions under such conditions by providing you with an analytical understanding of the topic. When signing up for this course, it is essential that you feel comfortable with the challenging nature of this topic.

Waitlist

This course has a limited number of places. If demand exceeds capacity, MFIN Year 2 students will be given priority over Year 1 students; any remaining places will be allocated by lottery. The course administrator will add students to the waitlist if they wish.

Course Administrator: Kirandeep.Saini@hhs.se

After completing this course, students should be able to:

• Understand the challenges and trade-offs that arise in integrating sustainability into firms’ decision-making.
• Identify material stakeholders of firms and assess their often-conflicting demands.
• Assess the critical role of investors and financial markets in evaluating, rewarding, or penalizing corporate decisions to adopt sustainable practices.
• Evaluate the broad spectrum of investment approaches, methodologies, and frameworks in socially responsible investment.
• Understand the role of sustainability disclosure by firms and the challenges in systematically measuring these efforts.
• Reflect on the broader role of business and finance in society and its potential for positive social and environmental impact.

It is assumed that students have basic knowledge of corporate finance and asset pricing. Students who have taken the courses M04319 - Corporate Finance and M04339 - Asset Pricing and Investments are well prepared.

Students are requested to contact the professor directly if they have not taken courses M04319 and M04339 to make sure their background is adequate.

Required Reading

The required readings for this course contain several cases that we discuss in class. The links to the cases will be shared before each class. In addition, the following book serves as the primary textbook for the course:

• Pomorski, Lukasz (2024): The Puzzle of Sustainable Investment: What Smart Investors Should Know. Wiley.

The textbook is available electronically through the library's online resources.

Background Reading

The background readings for the course contain several articles and notes, which are primarily meant to help students analyze the various issues covered in the cases. The material will be shared before each class.

Grading is based on in-class participation (20%), case memos (20%), a group presentation (20%), and a written, invigilated final case examination (40%).

Find the course schedule in TimeEdit

Have you been granted educational support because of a documented disability? If so, please contact the course director as soon as possible so that adequate accommodations can be made.

Contact specialneeds@hhs.se if you have questions about being granted educational support or need a copy of your educational support certificate.

For more information, visit the Specific Educational Needs page on the Student Hub (login required).