Teaching sustainable finance can only better equip students to understand systemic risks

Abigail Herron is head of ESG and strategic partnerships at Aviva Investors

Over the past decade, business schools have increasingly equipped students to understand how systemic risks — such as environmental factors — can influence the profitability and long-term value proposition of companies. Integrating these factors, with others, into decision-making can help mitigate the risks they pose and take advantage of the strategic opportunities they offer, delivering better commercial outcomes.

This is good business practice, that has the potential to shift focus from short-term profitability horizons and create a generation of business leaders more equipped to target long-term growth. The financial market collapse of 2008 and economic shutdown during Covid-19 were indiscriminate in their reach and effects. Both sharpened awareness that the biggest risks businesses face are increasingly systemic. Researchers have long explored, debated and codified how companies should be organised, the role of management, and other strategic considerations. They should now do the same around these systemic risks. Systems-level thinking and teaching is a robust starting point for attempting to see a broader range of pressures and connections, make more informed decisions and seize opportunities.

Teaching sustainable finance, as part of a broader syllabus, equips students to understand systemic risks, the commercial risks they pose, the need for business leaders to respond, and what those actions might be. Applying a systemic risk lens requires an introduction to how complex systems work, how interrelated they are and, therefore, why addressing topics such as biodiversity loss and anti-microbial resistance is all-the-more important. The key is the business imperative of value creation rather than the normative perspective of individuals’ own values. This isn’t about values; this is about better business outcomes.

Sustainable finance courses should provide insight into why businesses and financial institutions have a commercial interest in promoting transitions to more sustainable environmental and health systems — as a way of mitigating their exposure to these risks, but also of creating value for their clients and shareholders.

My company has sponsored a project reviewing the course materials of business schools to see which offer this comprehensive “systems” view. This includes developing a partnership with Forum for the Future called the School of Systems Change, to help financial practitioners learn from each other how and when to influence the economic system in the face of market failures. We also support PhD research programmes at the University of Surrey and run workshops at King’s College, London. To help broaden our own education, I and many of my colleagues have taken the Cambridge Institute for Sustainability Leadership (CISL) Masters in Sustainability Leadership.

A high calibre education is underpinned by three pillars: debating ideas, challenging consensus and questioning orthodoxy. Students should hear all perspectives to allow for well-informed critical appraisal of claims around the benefits and limitations of ESG-focused investment approaches, and around systemic risk. This enables them to make up their own mind and be in an informed position to challenge the orthodoxy of what has been taught in business schools historically.

If business schools teach what they’ve always taught, and frame thinking of systemic risk as purely a cost, then this ignores the past 20 years of developed thinking on systemic risks. Challenging and debating is a core part of developing as a business leader.

As employers of business school graduates, we see great benefits in a syllabus that evolves alongside increased understanding of business performance and its influences. Using these pillars to drive understanding of systemic risks would be of great value for future leaders. The most impressive recruits demonstrate that they can use the three pillars to analyse sustainability challenges through multiple approaches and find solutions.

They combine dynamic debating, a deep understanding of the most troubling systemic risks, and a flair for finding commercial solutions. Business leaders of the future equipped with these skills will be better prepared to act responsibly and in collaboration with other stakeholders. Responding to systemic risk is a collective responsibility and is only possible with widespread understanding.

Business school rankings have historically just focused on graduate salaries or alumni assessments. The evolution in the FT’s rankings to include broader metrics such as net-zero teaching in business schools’ MBA rankings is a step in the right direction. Reflecting the full integration of systemic risk and sustainability in syllabi will build on this further. It shouldn’t be considered an optional extra module, or a tick box to meet the criteria, if business schools are to equip their students with the necessary skills.

Business schools seek to prepare their students for success. An evolution of the definition of success to encompass understanding the sustainability of the financial system, the real economy and the society and environment on which they depend, will support the next generation of business leaders to champion future growth.