Recently, we have seen many accounts of how environmental, social and governance (ESG) portfolios and funds have outperformed mainstream equivalents during the Covid-19 crisis. Coupled with this has been the discussion about how this coronavirus has, despite all of the ongoing challenges, presented the business community with an opportunity to re-strategise how they may emerge from this crisis in a more sustainable and responsible manner. In turn, this has provided renewed impetus for a more long standing debate about the need to ‘reinvent’ capitalism – whereby businesses are seen to have the potential to generate ‘shared value’ for not only themselves and their shareholders, as was traditionally the case, but also broader society and the environment at large.
Missing from these discussions, however, has been the consideration of how both enhanced investor appetite for more responsible investments now, as well as increased (investee) company recognition of and response to this in their post-Covid recovery plans, could or should have a knock-on effect on business school curricula and the potential role of business schools in our recovery efforts.
At present, there is a wide-range of sustainable business, management and leadership programmes available at undergraduate, post-graduate and executive level throughout international business schools, as well as a less extensive range of sustainable finance – the integration of ESG issues into banking, investment and insurance – offerings in a selection of these business schools. Yet, the interrelationship between both is nascent at best, if at all developed. What we see is that, when it is conducted, the teaching of sustainable finance, is predominantly done in finance (and accounting) departments; paying little attention to the business and management dimensions of this. While general or sustainable business programmes conducted in largely management (and strategy) departments, likewise, pay piecemeal attention to the basic tenets and importance of sustainable finance for business practice.
Such silos are worrying. They are unrepresentative of current advances in real world financier-company relationships around ESG issues – such as investor stewardship practices – and mean that business school graduates are ill-equipped for the same. A more integrated approach to sustainable finance and management education could help business schools address this challenge and ensure that they make the most of the opportunities that have now been presented to them. This would entail the following:
Firstly, beyond the need to embed sustainable finance into core finance curricula, as opposed to it being offered as a specialised or elective option, emphasis also needs to be placed on developing finance students’ deeper understanding of the reasons why and how companies (mis)manage ESG issues and risks from a business perspective, and how this can greatly affect, and be influenced by, investor-company engagements, for instance. The relative outperformance of investment funds with a strong emphasis on ESG integration in their analysis and asset selection throughout the pandemic, makes it harder for ‘mainstream’ finance professors to disregard the importance of sustainable finance any longer, and arguably irresponsible for them to do so considering the increased movement of the finance sector in this direction.
Secondly, in the teaching of sustainable business practice, management professors need to recognise that the boundaries between a shareholder-view as opposed to stakeholder-view of the firm are beginning to blur through the responsible investment agenda in particular; making this more nuanced. Nowadays, you are more likely to see investor and, for example, non-governmental organisation (NGO) interests and demands for company action on environmental and social issues aligning more than ever before. Their (material v moral) motivations may still differ, but their desired outcomes – less harmful environmental and social impacts and proactive sustainability leadership by business – are similar. Relatedly, it is important to educate (mainstream) business and management students about the negative effect poor governance and management of, as well as transparency and reporting about, ESG issues can have, for example, on their future companies’ cost of capital, investment appeal, talent attraction, brand, and insurance premiums. And similarly, how good governance, strategic management, quality disclosures, and innovation surrounding ESG issues can deliver long-term, socio-economic value.
Thirdly, and ideally, business schools need to develop new, fully ‘integrated’ courses which allow students to merge knowledge from a variety of finance and accounting and management perspectives – such as strategy, operations, human resources, marketing and entrepreneurship – so as to use that in sustainable business simulations, for a more holistic view and understanding of progressive business practice. The now 10-year old, core ‘Sustainable Decisions and Organisations’ module in the Nottingham University Business School, MBA Programme is one example of such an approach.
These integrated courses may require new forms of collaboration between those finance, accounting and broader business and management scholars delivering the programmes – and consequently increased tolerance of their differing (quantitative and qualitative) traditions – but there is tremendous scope for the exploration of imaginative ways to address this.
Finally, a greater role could also be played by both sustainable finance and business professionals in these integrated courses. While some professionals may currently be engaged as guest lecturers in business schools, or involved in the development of short, specialised sustainable finance and management courses run out of business schools – largely for a professional audience – more could be done to utilise their combined expertise in the design, delivery, and assessment of these integrated courses for (non-executive) business school students. This in turn, would increase the ESG knowledge needed by new graduates appointed to their firms, while simultaneously creating new knowledge-exchange partnerships and evidence-based teaching and research opportunities between business schools and the business community.
The Covid-19 crisis has reminded us of how highly interconnected and dependent our socio-economic systems are with our natural environment. If we are going to emerge from this crisis successfully, and try to prevent it from happening again, we must be ever mindful of the impact and consequences of our economic actions on our environment and society; and have the necessary provisions in place to understand, manage, measure and report upon these impacts to the highest standards. Education and training in responsible business practice lies at the heart of such a blueprint for Covid-19 recovery. And by default, so do business schools. They have a duty of care to their students and society to recognise this and to ensure that they are providing the necessary guidance, knowledge and skills that our business leaders of tomorrow need to prepare for these real-world challenges. If they do not, history may not look back favourably at this crucial, missed opportunity for educators to create integrated programmes that are fit for purpose in a post-Covid world.
Niamh O’Sullivan is Assistant Professor, International Centre for Corporate Social Responsibility (ICCSR), Nottingham University Business School (NUBS).
Will Oulton is Global Head, Responsible Investment, First State Investments, and Honorary Associate Professor, ICCSR, NUBS.