Looking at Sustainability Through the Lens of Finance
I recently sat in on a webinar hosted by the Aspen Institute entitled “Sustainability Trends in MBA Education.” The seminar was rich in insights and highlighted the increasing demands by business students and faculty for coursework on the topic of environmental sustainability and social impact. One of the challenges in launching sustainability electives or adding sustainability modules to existing courses in business schools, however, is a lack of available teaching materials or well developed pedagogical tools and frameworks.
Here at the Ross School of Business at the University of Michigan we have decided to do our part in addressing this “market failure.” Professor Gautam Kaul, the John C. and Sally S. Morley Professor of Finance at the Ross School of Business, has agreed to put his course entitled, “Finance and the Sustainable Enterprise,” online for faculty at other schools to use. The course is unique in that it looks at the issue of environmental and social sustainability through an economics and finance perspective. The course has already been taught five times at Michigan and has received rave reviews.
The online resource will include access to teaching cases and notes, the course syllabus, commentary on class sessions, a community forum, and video (forthcoming). I will also be working with Professor Kaul to keep a blog on the course and develop new knowledge pieces to further advance the field.
Professor Kaul has been at the Ross School of Business since 1984 and received his Ph.D in economics from the University of Chicago. He recently won the MBA Teaching Excellence Award at the Ross School of Business.
Note: To access the website, you must be an educator.
The past decade has witnessed the emergence of the notion of “sustainable” business in both corporate and academic circles. Although still nebulous, a reasonable characterization of a sustainable enterprise is emerging. In its broadest sense, a sustainable business is one that achieves an optimal balance between profit and shareholder value, on the one hand, and broader economic, social, and environmental values, on the other.
So, why is there this need for studying a “sustainable” enterprise? This relatively recent, though increasingly visible and important, trend seems to imply that most (or at least a significant fraction of) current businesses are not sustainable. As a result, some business schools offer courses that deal with the strategic, marketing, and policy aspects of sustainable business. This course goes a step further and explores the financial issues unique to sustainability issues confronted by businesses.
In this course, we will address the financial and valuation issues from the perspective of a typical firm, whose objective is to maximize shareholder value, but recognizes and confronts a whole slew of environmental issues with dire real effects. We will critically evaluate the viability of the assumptions and institutions necessary to ensure the success of any modern firm in achieving its objective of maximizing shareholder, without adversely affecting broader economic and societal values. More importantly, we will modify existing economic and financial frameworks in an attempt to evaluate the effects of new and emerging regulatory and strategic environmental issues on the value of projects and firms.
This process will make us realize that “business as usual,” at least as we have known it for the past several decades, cannot lead to a sustainable world. We hopefully will also emerge through this experience equipped with a framework and a set of tools that can help us create and manage businesses that can deal with the complex and uncertain world confronting us today. Ultimately, our goal is to evaluate not only the private benefit, but also the social value, created or destroyed by a project and therefore the firm.