Course Scope

This course is a thorough introduction to the fast-evolving and expanding subject of environmental finance. In particular, it

• introduces the environmental and social risks for firms and banks and highlights the difficulty of their measurement;
• describes the risks for banks and investors who do not take sufficiently into account the ESG (Environment, Social, Governance) performance of the entities they finance;
• analyzes the on-going effort for the development of accounting standards for ESG measurement;
• discusses the fast-changing institutional environment and the additional challenges it poses to all economic agents;
• analyzes the economics of ‘green’ banking, ‘green’ investments and pollution markets;
• explores how banks, and the financial system in general, can contribute towards addressing environmental and social problems.

After completing the course, the students are expected to understand

• ‘green’ financial products and their risk-return trade-offs;
• the role and the incentives of major players, such as, financial institutions, institutional investors, NGOs and governments;
• the risks (rewards) of banks that provide financial services to firms with weak (strong) ESG credentials;
• the difficulties of measuring ESG performance and the accounting standards under development;
• the carbon footprintof corporations and institutions, and ways to reduce it;
• carbon credits –creation and usage– and related investment opportunities in pollution markets

Course Outline

Α. The big picture

1. Introduction – ‘Business opportunities with social responsibility’
2. Thinking about environmental and social risks – A simple framework

Β. Accounting issues

3. Corporate sustainability
4. Accounting information and sustainability
5. ‘Green banking’
6. Risks and opportunities
7. Measuring banks’ ESG performance
8. Environmental and social credit-risk assessment
9. Proposed regulatory interventions – Unintended consequences of good intentions

Financial investments

3. Selection criteria

• ESG performance and investment performance

Carbon markets

• Economic rationale
• Tradeable permit systems

Financial investments

Suggested Reading

– Related academic journals: Academic articles and policy papers from the ECB, the IMF, World Bank/IFC, the BIS…