Soon after launching the Impact Future Generations 2025 strategic plan, EDHEC Business School announced the creation of the MSc in Climate Change & Sustainable Finance, committing to training new financial experts. As members of the EDHEC Finance Club and EDHEC students, we wanted to share our perspective.
Written on 02 Feb 2021.
EDHEC’s strategic plan was presented to the public on March 13th, 2020. The announcement closely followed that of the sale of Scientific Beta, a start-up created 10 years ago by EDHEC through their teaching staff’s research to provide asset owners and asset managers with factor indices and strategies. It was sold to the Singapore Stock Exchange (SGX) at the beginning of 2020 demonstrating the school’s solid economic model and the importance it puts on innovation. Indeed, it was an example of how its entrepreneurial spirit has distinguished EDHEC from other schools for decades. The school’s positive continuous growth, excellence, and innovation capacities are well recognised in various rankings. EDHEC is the 4th Grande École in France.
EDHEC’s strategic plan has clearly been designed to tackle the major challenges we are facing today: technology’s disruptive impact, climate change consequences, wealth inequality, social inclusion, post globalisation. EDHEC has been precocious in pinpointing and recognising the importance of Sustainable Finance. For the intake of 2021, it will take this a step further in the introduction of its joint MSc with MINES ParisTech in Climate Change and Sustainable Finance. The emphasis that EDHEC has put on sustainable finance means that it will become a strong asset for the school in the years to come. It will have a great impact on the research topics the school will focus on, creating new partnerships and expanding EDHEC’s educational offer.
The roadmap is planned for the next 5 years, but change is starting today, and here is how, as students of the Financial Economics programme, we reflect upon the urgency of the issue.
Why do you think a sound financial understanding of climate change and sustainable finance will be key in the future workplace?
I see sustainable finance as one of the fastest-growing sectors of the financial industry today. Investors are putting more and more emphasis on Environmental, Social, and Governance (ESG) criteria when picking their investments. What was once viewed as a costly preoccupancy that shouldn’t come in the way of companies’ objectives has since been considered an asset. What’s more, some ESG criteria is now increasingly considered as the bare minimum a firm needs to be considered a viable investment. Such criteria, at the heart of sustainable finance, is not easily quantified and their complexity means that you need solid education in this field to evaluate them. Efforts like the Carbon Disclosure Progress have led companies to increasingly report their carbon emissions.
There are two main reasons, amongst many, for which investors may want to favour companies with low carbon emissions: the first one is ethical, as potential investors may want firms to have a positive impact on the environment. The other is that carbon emissions usually reflect a firm’s exposure to carbon risk, which exists in the form of physical and transition risks. The CDP and the 2015 Paris Agreement are two of the reasons why sustainable finance has recently been growing so fast. I think that its increased importance in investors’ decision-making means that they will be bound to recruit more people educated in sustainable finance, and the valuation of carbon risk and environmental impact is one of the many crucial questions they will be able to answer.
Sustainability will be at the heart of decision making for firms as well, as they want to build durable business plans that need input from people who studied sustainable finance. In a broader way, education on climate change and sustainability will enable us to analyse decisions and news in the light of these subjects.
I recently wrote an article analysing the outperformance of stocks. The increasing prominence of these stocks means that there will be a greater need for people who know how to analyse their business models. I think EDHEC’s MSc in Climate Change & Sustainable Finance will give its students the necessary tools to do so.
Investors and financiers, in general, need to understand the many facets of sustainability. The complexity of these issues and the importance they have in finance are why companies need to recruit people well-educated in sustainable finance. Finance will play a key role in the fight against global warming and people who study climate finance now will be prepared to understand and tackle the crucial issues of the future.”
It is increasingly clear that the society as a whole will need to move towards a more sustainable business model. However, they are not the only responsible parties, everyone will be held accountable for its ethical and sustainable behaviour. To ensure change governments and governmental organisations around the globe will need to accelerate their creation of laws which encourage green investment and the regulation of polluting companies. The central banks will be required to build financial products in order to support their country’s government with their green transformation. Consumers will require to continue evolving towards a much more sustainable lifestyle starting with simple and daily actions.
We will see a knock-on effect whereby company board of directors and executive committees will increasingly hold companies accountable for the sustainability of their actions. Shareholders will challenge the decision-making of companies according to their sustainability.
We are in the middle of a period whereby we see a clear shift in mindset which is illustrated at all levels. An example would be both the Kyoto Protocol and the Paris agreement have called for financial assistance that will address climate change and furthermore highlighted that significant investments are needed to reduce emissions. Indeed, the World Economic Forum predicts that by 2020, approximately $5.7 trillion will need to be invested in green infrastructure each year. The European Commission estimates that to make the EU climate neutral by 2050, it will need an additional €175 to €290 billion per year of investment in the coming decades.
In 2008, the World Bank issued its first green bond which was a turning point in the evolution of what we call “Climate Finance”. The objective of green bonds is to fund projects that will have a positive impact on the environment. Another initiative to tackle climate change with finance is “Impact Investing”. In the same way as green bonds, “Impact Investing” aims at generating not only financial returns but also it aims at having positive social and environmental outcomes.
Then, by divesting from polluting companies such as what the University of Oxford recently did. In fact, a few months ago it announced that it will drop all fossil fuel companies from their £3 billion endowments.
To me, sustainability is a responsible consumption of any resource (material or immaterial) and creating the best output leaving a positive impact on the ecosystem. Sustainable practices in any industry involve the right sourcing, processing, and producing the goods to the highest efficiency while creating a scalable and eco-friendly value chain.
As a finance student, I have developed a keen interest in studying the concepts of sustainable finance and found it interesting to consider the environmental, social, and governance (ESG) parameters into account when making an investment decision. This will lead to increased long-term investment into sustainable economic activities and projects. The finance industry is the nucleus of every business and sustainable practices and restructuring in huge industries will require financial professionals to have good knowledge in this domain.
In recent times, there has been increased attention towards sustainable practices across industries ranging from energy to automobile and fashion. The European countries are in the frontline to initiate stringent laws to make companies follow the best practices. According to a research paper, I just read the investments in sustainable finance will outnumber the traditional investments by 2025 and there will be a huge restructuring across industries and countries. Many financial institutions and investment banks have affirmed that sustainable practices will be a long-term profitable strategy and have setup a separate division to investigate ESG investing and restructuring of organisations who wish to transform their company.
At EDHEC student finance club, we have a Sustainable finance division where we collaborate and share knowledge regarding investing strategies across industries considering ESG parameters. Our objective is to educate, engage and explore sustainability and augment our awareness in the field.
As the former US President Barack Obama once said: “no challenge poses a greater threat to future generations than climate change”, and we, as students, decided to tackle head, once and for all, this issue. We, as EDHEC students, want to change things, and we can proudly say that with the new strategic plan announced by EDHEC, we are well supported, because we all are acting, today, for the “future generations”.