ESG AND SUSTAINABLE FINANCE

The course is part of the educational offer of the Master's Degree program in Economics and Finance. The goal is to provide students with the tools to analyze and measure the financial risks posed by social and sustainability issues, including the impact on investments. In particular, the environmental, social, and governance (ESG) dimensions that represent the central drivers for measuring the sustainability of an investment in a given company will be analyzed.

According to Milton Friedman, the main responsibility of a company is the maximization of the shareholders’ returns. For decades, environmental, social, and governance (ESG) responsibilities were not considered relevant by most of the companies that have been focusing on profit maximization.
Not only were ESG responsibilities believed to merely have no incidence on financial performance, but they were also perceived as a potential burden to the latter, being related to cost increases.

Nevertheless, in the last twenty years, environmental, social and governance issues revealed their influence not only on the profitability but also on the financial viability of several firms.
As a natural consequence, the asset allocation process began to evolve. In addition, growing environmental, social and governance awareness has been observed around the world.

Therefore, even though socially responsible investing (SRI) has been around since the 1920s, it has only recently seen a noticeable surge in interest and has become a general concern rather than a niche investing practice.

Knowledge and understanding

- Knowledge and understanding of the historical framework and the elements that characterize sustainable finance, socially responsible investments (equity and green bonds) through the ESG dimensions.
- Knowledge of the rating sector and scores in the ESG dimension.
- Knowledge of the financial performance of ESG and non-ESG (sin stock) investments through the use of positive screening.

Ability to apply knowledge and understanding

- Identify the sources of information needed to support sustainable investment choices.
- Use and analyze financial databases to acquire ESG ratings and scores.
- Use of programming languages ​​such as Matlab or Python to carry out investment simulations and performance measurement.

Ability to analyze and evaluate
- Identification of an ESG and non-ESG investment universe, implementation and comparison of the two efficient frontiers.
- Construction of an ESG portfolio and comparison of performance and exposure to risk factors towards a non-ESG portfolio over different time horizons.

Basic knowledge indicated in the preparation requirements to enroll in the Degree in Economics and Finance.

Basic use of spreadsheets and programming for data analysis.

- The evolution and historical context of socially responsible investments
- The principles and foundations of the ESG dimensions
- ESG ratings and scores
- ESG Equities and Green Bonds
- Positive screening
- Recalls of the efficient frontier for ESG / non-ESG investments
- Financial performance and factor models in ESG / non-ESG investments

Materials, notes and slides provided by the lecturer.

References:

Sherwood, M. W., & Pollard, J. (2018). Responsible investing: An introduction to environmental, social, and governance investments. Routledge.

Schoenmaker, D., & Schramade, W. (2018). Principles of sustainable finance. Oxford University Press.

Hill, J. (2020). Environmental, Social, and Governance (ESG) investing: A balanced analysis of the theory and practice of a sustainable portfolio. Academic Press.

Creation and discussion of a sustainable and an unsustainable portfolio through a case study (oral examination)

The expected teaching methods include lectures, laboratory sessions, and seminars. During lectures, a frontal teaching approach is used to impart and deepen knowledge on topics related to sustainable finance and the evolution of the financial industry. In the laboratory sessions, students will learn to analyze the efficient frontier and use factor models in Python. Finally, the seminars offer an opportunity for experts in the field and participants to engage in discussion and explore how the ESG dimension is integrated into finance.

Italian

oral

This subject deals with topics related to the macro-area "Human capital, health, education" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development