BUS328 Financial Economics of Climate and Sustainability

Environmental risks are to an increasing extent impacting financial markets. The key risks are related to climate change, biodiversity and land use. Financial markets are affected by physical changes in the environment as well as public regulations aimed at mitigating climate change. As the markets are forward looking even small changes in the environment and in government policies can have a large impact on the pricing of capital.Through this course the students will gain a broad competence on how environmental risks impacts on firms and markets. The course reviews cases for how firms and investors can create value by including environmental, social and ethical consideration in their strategies (ESG). The course will also provide a solid foundation for understanding the role of the financial system in mitigating climate change. Climate change is a critical issue facing the planet and will require massive flows of capital. Finance will be instrumental in facilitating the transition to lower-carbon economies.

The first part of the course presents the main concepts of sustainable finance: The ambition of including environmental risks and ethical considerations in business decision making and risk management processes. Included here are reflections on the purpose of the firm, and the effects of externalities and how they may be internalized. The second part of the course review the causal effect by economic activity on climate and globalwarming, before focusing on how to define, measure and manage the financial risk of climate change. The third part of the course focuses on the role of capital markets, asset management, and sustainable lending and investing in the green transition. The students will gain knowledge of financial instruments and strategies that align with different investor preferences and evolving policies, and will also review how sustainability considerations affect the trade-off between risk and return.

The main purpose of the course is to acquire a thorough understanding of how sustainability considerations can be integrated in investment and financing decisions. The students will learn how to identify the sustainability dimensions of typical financial problems, and how to make reasoned decisions when faced with dilemmas and trade-offs.

Upon successful completion of the course the student:

Knowledge

• will know the general concepts in the field of sustainable finance
• will know the main metrics and financial instruments related to sustainability from a financial perspective
• will have advanced knowledge of the role of the financial system in mitigating climate change, including the use of sustainable financial instruments and strategies

Skills

• can identify and analyze relevant and material sustainability issues in the context of financial decision making
• can apply theories of sustainable finance and business ethics to concrete company and portfolio cases

General competence

• is well conversant with the above-mentioned elements related to knowledge and skills
• is able to apply this insight on practical investment problems
• is able to critically reflect on the ethical considerations that are associated with responsible investment