Chapter 2 Impactful knowledge creation
Integrated thinking in sustainable finance
Reading time: 6 minutes
by RSM Case Development Centre
The current economic system is based on linear growth and consumption. Our planetary resources, however, are limited and running out. To keep our planet liveable for both current and future generations, the prevailing paradigm is untenable and requires change.
This sums up the need for a sustainable economy, for which the financial sector must be a driving force. Neo-classical economic theory does not adequately address sustainability challenges, because the dominant model focuses on maximising short-term financial gains for shareholders. One of the biggest challenges for the financial sector will be to take a more integrated and long-term approach and to truly add value for all stakeholders. How can research promote such practice? The Erasmus Platform for Sustainable Value Creation (EPSVC) is a hub to spark meaningful debate and for developing new insights through research and education in close collaboration with leading sustainable financial players in industry and academia.
The ultimate goal of the Platform’s practical research is to advance sustainable development through stimulating best practices in sustainable value creation. To this end it collaborates with industry partners and leading service providers to co-create new or more advanced methodologies. The Platform is a joint effort of:
- academia (twelve participating faculty members from RSM and other schools at Erasmus University Rotterdam)
- students from RSM
- industry partners (Robeco, ABN AMRO, ASN Bank, NWB Bank, PGGM, Deloitte, Rabobank and Triodos Investment Management)
- NGOs (four participating organisations)
- policy makers (the Dutch Central Bank and AFM, the Dutch supervisor).
Together with these partners, the Platform has formulated five focus themes:
- Climate change
- Cost of capital
- Impact and SDGs
- Long-term value creation.
There are several short- and long-term projects running on each theme. For example, on the theme of Impact and SDGs, academic members and industry partners work together to make the UN’s Sustainable Development Goals more concrete by formulating specific SDG-related research questions. The resulting cases will lead to a broader understanding of how the SDGs can be used in investing and how subsequent impact can be measured.
Another example is the Committed Shareholders project. Too often short-term dilemmas, gains and profit get in the way of long-term sustainability ambitions. Kraft Heinz’s take-over attempt of Unilever is a perfect example of that. How to deal with such situations is an important question for both companies and their institutional investors. How can institutional investors, as committed shareholders, support sustainable companies and work jointly on long-term strategy and value creation? What are the indicators for successful long-term-oriented engagement between institutional investors and leading companies on the Amsterdam Stock Exchange? These questions are the focus of the project that relates to both the theme of engagement and that of long-term value creation.
One of the Platform’s publications is an annual overview of climate change finance, written by a different academic member and a student every year. This study investigates six key papers in areas of finance that are affected by climate change: banking, institutional investing, portfolio returns, real estate and long-term investments, and corporate finance. The authors bridge the gap between theoretical knowledge and practical action, and provide indications for the future of finance-focused climate change research.
The book Principles of Sustainable Finance (2019), written by RSM’s Professor Dirk Schoenmaker and Dr Willem Schramade, founder of the Sustainable Finance Factory, combines theory, empirical data and policy examples to explain how the financial sector can be mobilised to counter the popular concept that finance is an obstacle to a better world. It won the prestigious ERIM Top Book Award in 2019 – selected by an academic committee accredited by the Royal Netherlands Academy of Arts and Sciences (KNAW).
The primary goal of the EPSVC is to bring together scholars, students, professionals, and policymakers to drive real-life changes. The academics associated with the Platform always keep this in mind when they conduct research.
The Platform produces white papers and frequently engages in high-level policy discussions, for example with the Dutch financial supervisory bodies. The Platform’s reach goes beyond the Netherlands. It organises events that bring in keynote speakers who are global frontrunners in sustainable finance. Prof. Dirk Schoenmaker, academic director of the Platform, is also a non-Resident Fellow at the Brussels-based think tank Bruegel and a Research Fellow at the Centre for European Policy Research.
Sustainable finance is an integral part of the graduate and executive programmes at RSM. Both theory and practice on this topic are embedded in RSM curricula. An example is an assignment for master students to use scenario-based discounted cash flow methods to analyse individual corporations while incorporating environmental, social and governance factors and climate scenarios. Master student teams also solve real-life business cases for industry in the Living Management Case. They are also encouraged to write their theses on sustainability topics and to do internships with corporate partners of the Platform. RSM Executive education makes financial professionals ready to take a stewardship role in society by adopting the new models and approaches for sustainable investing and lending in its three-day open course Sustainable Finance.
Thanks to the broad and expanding network of the Platform, RSM research influences many professionals in the financial industry, who in turn work hard to make the financial industry more sustainable. Among them are the founder and owner of the Sustainable Finance Factory, a policy advisor and economist at the Dutch Central Bank (DNB), and Senior Associate Engagement at Aegon Asset Management ‒ thought leaders of the industry who share critical ideas about what direction the industry should take.
The Platform’s publications are written for fellow academics as well as the public. The award winning book Principles of Sustainable Finance is used in RSM’s MSc Finance & Investments programme, the Executive MBA, the short executive course Sustainable Finance, and the MOOC Principles of Sustainable Finance. The book is tailored towards students; each chapter begins with an overview and learning objectives. It includes suggestions for further reading, definitions of key concepts, and extensive use of figures, boxes and tables to clarify concepts.
In addition to publications, the Platform hosts a working paper series to inform financial and sustainability managers about new scientific insights in the field of sustainable finance. The current series includes:
- papers on investing for long-term value creation, climate shocks associated with innovation in science, and cost of capital
- cases studies on Royal Philips, Air France KLM, and McDonald’s sustainable finance practices.
Academic members of the Platform also collaborated with RSM’s Case Development Centre and Commonland Foundation to produce a case study on sustainable finance for landscape restoration in Spain, as part of the EU funded Erasmus+ ENABLE project.
The Platform’s publications, working papers and case studies are all free to download and are accompanied by non-technical summaries. The researchers also write blogs to introduce the Platform's work to the general public, share their ideas, and promote and foster thought leadership. The blogs are available on the Platform’s website, with topics ranging from principles of sustainable finance to monetary policy and green bonds. Prof. Schoenmaker also writes opinion pieces for the leading Dutch newspaper Het Financieele Dagblad on issues like climate change and carbon tax.
According to Prof. Schoenmaker, “the driver for sustainable development is integrated thinking. Integrated thinking in finance requires, first and foremost, a mindset that is open to integrating social foundations and planetary boundaries with finance.” By combining financial, social and environmental returns, the Erasmus Platform for Sustainable Value Creation is a true promoter of integrated thinking that our world today desperately needs.