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This course is aimed at students who would like to learn more about the world of environmental, social and governance (ESG) investing and sustainable finance. In 2020, 1 in 3 dollars of the total US assets under professional management was being managed according to ESG principles (US-SIF, 2020). This course provides an overview of the most relevant aspects of ESG and sustainable investing which are presented in a way that should nurture critical thinking.
• In the first part, we will start with an introduction to sustainable finance. You will learn about the differences between the terms ESG and corporate social responsibility (CSR), attributes of the ESG market, major players in the ESG landscape, European Commission’s view on the topic, as well as the importance of the ESG risks through the lens of World Economic Forum (WEF).
• In the second part, we will cover ESG factors. We will cover each of the ESG pillars in depth. We will look at the most important metrics in the of E = environmental, S = social and G = governance pillars in isolation, as well as their interdependencies.
• The third part is the core of this course. It covers all major issues that each user of ESG ratings should be aware of: anatomy of ESG ratings, the market for ESG rating providers and their oligopolistic market power, current trends in the ESG rating design, ESG data backfilling, the incentives in the ESG ratings industry. The section concludes with a discussion of the real effects of ESG ratings.
• The fourth part is about ESG investing. We will cover the concept of materiality and double-materiality, and will talk about the risk-return relationship in finance. You will also learn about sustainable investor types, ESG analysis, valuation, and integration.
• In the fifth part, we will talk about ESG engagement – its forms and success factors, a case study of ExxonMobil and Engine No. 1, and we will also cover the trade-off between maximizing firm value and implementing other objectives, effects of divestment, and the fact that “looking green” is not the same as “being green”.
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