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Sustainable Finance

Since firms have both positive and negative impacts on the real world, managers must consider how to integrate sustainability into their decision-making. Rather than developing entirely new methods, it makes sense to explore how social and environmental values can be incorporated into management decisions, particularly financial ones. Only when social and environmental values are appropriately incorporated into the financial manager’s toolkit can firms create long-term value in a changing environment. Building on an overview of the United Nations’ 17 Sustainable Development Goals (SDGs) as a path toward a sustainable economy, this course focuses on the question of how sustainability can be integrated into corporate finance tasks, such as calculating the net present value for investment decisions, capital budgeting, the valuation of stocks and bonds, the calculation of the cost of capital, and decisions regarding capital structure. This approach is based on the view that firms must serve the interests of current and future stakeholders, resulting in an integrated model that combines financial, social, and environmental dimensions.

While sustainability is often viewed as a cost for firms, transitioning to a more sustainable business model could actually improve a company’s competitive position. In this context, four major transitions of importance to firms can be identified: 1) climate and the energy transition from fossil fuels to renewable energy, 2) raw materials and the transition to a circular economy with redesigned products and recycled materials, 3) biodiversity and the transition to healthy food and nature-positive agriculture, and 4) labor practices and the transition to decent working conditions throughout the entire value chain. Given the uncertainty surrounding how these major transitions will unfold, however, firms should adopt a long-term value perspective and prepare for multiple transition scenarios, which requires a shift from a static to a dynamic mindset: Since major sustainability transitions will transform the markets for products and services, pioneering firms can strengthen their competitive position, while entities that focus exclusively on financial value will fall behind due to an outdated business model and may eventually disappear. Therefore, financial decisions must take into account both financial value (Does a project generate a profit?) and social and environmental value (Are the projects future-proof?). 

This highly multifaceted module was first offered in collaboration with the School of Business & Economics at the University of Marburg and is to be transferred to the ifG Marburg in the future, as needed. The course is offered in partnership with a collaborator from ICN Business School and can also be made available to members of the support association of the ifG Marburg as a customized executive program.