This course is motivated by a number of recent trends and debates related to climate change and other environmental, social and governance (ESG) issues. There has been a vivid debate about corporate social responsibility (CSR), the purpose of firms and whether they should primarily be dedicated to shareholders or serve all stakeholders. Firms have faced major pressures with respect to climate change, sustainability and social challenges. Moreover, as consumers and employees pay more attention to ESG issues, they become a strategic dimension along which companies compete. Investors around the world have increasingly been allocating capital towards funds and companies promoting ESG issues and sustainability using various screens and non-financial criteria. The sustainable finance industry has exploded and created a large number of financial products.
Firms have responded to these trends and forces by providing additional non-financial disclosures as well as standalone CSR or ESG reports. In doing so, firms need to identify non-financial and ESG issues that are relevant to their stakeholders, find ways to measure related risks and impacts and ultimately means to disclose them credibly. Investors and stakeholders face the challenge of analyzing these data and integrating them with traditional financial analyses. Information intermediaries have arisen to aid firms and investors with these challenges. Standard setters offer guidance and protocols for measurement and reporting. Rating agencies and specialized providers collect massive amounts of ESG data and provide evaluations and scores. Audit firms offer assurance services for corporate disclosures and reporting on ESG matters.
The course covers the emerging ESG landscape with a focus on using and analyzing information, disclosure and sustainability reporting. It introduces students to this landscape and helps them understand and navigate it. The goal is to make students savvy analysts and consumers of corporate ESG information and sustainability reports; to provide frameworks and tools that enable students to evaluate and integrate ESG information into financial and sustainability analyses; and to make links between ESG information and performance and firm value.
We begin by clarifying what CSR, ESG and sustainability mean and how they relate to corporate objectives and the purpose of the firm. We cover different ESG perspectives, the central role of externalities, materiality concepts for ESG information and how they connect to firm objectives. Next, we discuss the current state of firms’ voluntary ESG disclosure and reporting practices, the role of markets in shaping the demand for and supply of ESG information as well as the role of information intermediaries (e.g., rating agencies). Thereafter, we examine the emerging ESG and sustainability reporting infrastructure including standards and reporting mandates. We discuss the economic effects we should expect from these regulatory efforts. Equipped with this understanding, we discuss the role of ESG information in sustainable finance, including in ESG investing, private markets, and banking. We cover the quality of ESG information and the challenges that arise with respect to greenwashing and the assurance of information. Finally, we examine how corporate managers produce ESG information, use it internally, including to manage ESG risks and opportunities, provide incentives, in
governance or to create accountability.
The course comprises a mix of lectures, class discussion, cases, group projects, and guest speakers. The lectures draw heavily on academic studies as well as provide examples from industry trends and corporate
practices.
This course is likely useful for students who are interested in climate, CSR, ESG and sustainability issues, especially if they expect to use information and disclosures on these issues in their future careers. This is particularly relevant for students who want to pursue careers in banking, consulting, corporate roles in accounting and finance, or investment management. ESG implications play an increasingly important role in corporate decisions. Corporate ESG footprints are being scrutinized in credit, investment and M&A decisions. Familiarity with ESG disclosures and reporting standards as well as the ability to understand and analyze ESG information are therefore becoming more and more relevant.
