The Sustainability Education Gap
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More than 570 asset owners and investment managers who control more than $18 trillion in global assets have signed on to the UN’s Principles for Responsible Investment (UNPRI). The magnitude of these numbers indicates that sustainable and socially responsible investing has achieved mainstream status. At the same time, the news that the UNPRI expelled five signatories for failure to issue annual reports detailing their progress in implementing the group’s sustainability guidelines suggests a lack of serious commitment to the charter’s principles. These compliance failures may also be attributable to a short supply of investment professionals with the requisite skills to meaningfully assess the complex spectrum of environmental, social, and governance risk factors that must be monitored under the PRI initiative.
Bridging the Sustainability Education Gap
Bridging the gap between the aspirations of asset managers to account for sustainable practices and their ability to perform state-of-the-art sustainability-based investing will continue to be a challenge, not least because most business schools continue to be structured in a way that allows the next generation of analysts to sidestep any exposure to the discipline. “Many of the sustainability programs at American universities are siloed into their own areas,” says Paul Schutzman, an MBA candidate at Cornell University’s Johnson School who spent this summer interning as a sustainability analyst at RiskMetrics Group in New York. “If you are interested you can take a course or, in Cornell’s case, an immersion program, but you can also avoid sustainability entirely. Students like me who are interested in careers in sustainability want to see it better integrated across the curriculum.”
Although many universities are making earnest efforts to offer more robust sustainability curricula, they operate under the typical constraints of the academy. “There is a huge gap to be filled, and there is great demand out there, but the university takes a long time to respond,” says Cary Krosinsky, vice president of the environmental research consultancy Trucost and coeditor of the book Sustainable Investing: The Art of Long Term Performance. Departmental committees and boards of trustees typically take months if not years deliberating over proposed curricula revisions. Professors who may have spent careers spanning decades teaching managerial or cost accounting according to traditional methods are not always predisposed to toss out their syllabi and start anew. An additional challenge, Krosinsky acknowledges, is that socially responsible or sustainable investing “has not yet coalesced around a set of standards or principals,” making it difficult to build a curriculum.
Neither, as yet, does the self-study curriculum that prepares analysts for the CFA® charterholder examinations address sustainability in all of its dimensions. “Governance risk has been in the CFA curriculum for four or five years,” says Matt Orsagh, director of capital markets policy at the CFA Institute. “And I imagine some discussion about how environmental and social risks or opportunities can influence company valuation may make their way into the curriculum soon. But beyond one-day seminars and lunch meetings, I am unaware of any systematic, institutionalized sustainable-investing short courses being offered to the financial community at large or CFA charterholders in particular now.” The CFA Institute Centre for Financial Market Integrity has published a manual authored by Orsagh, Environmental, Social, and Governance Factors at Listed Companies, that provides analysts with an overview of the sustainability issues they need to monitor.
While the academic world plays catch-up, individuals wishing to pursue, or retool for, careers in sustainability-driven investing and analysis may find their needs met at a small but growing group of American universities and a larger universe of international academic institutions that have made a serious commitment to sustainability. Or they can enroll in one of the full-immersion sustainability-based graduate programs tailored to working adults at the Presidio Graduate School, the Bainbridge Graduate Institute, or the Marlboro College Graduate Center. Enterprising midcareer professionals may also fill in the gaps in their knowledge through some combination of select interdisciplinary coursework on a continuing-education basis, executive evening and weekend programs, distance learning, self-study, and attendance at sustainability conferences.
Beyond Grey Pinstripes Ranking
For those seeking an MBA with a meaningful exposure to sustainability, the Aspen Institute offers “Beyond Grey Pinstripes,” a ranking of the top 100 global business schools “that integrate social and environmental stewardship into curricula and research.” The 2009 report ranks the University of Michigan, the Yale School of Management, and the Stanford Graduate School of Business as the top three US schools for sustainability programs; and York University (Canada), the Rotterdam School of Management at Erasmus University (The Netherlands), and Instituto de Empresa (Spain) as the top three European programs. Ranked by coursework alone, the Yale School of Management, the Stanford Graduate School of Business, and the University of Michigan come out on top, and York University, the University of Michigan, and the University of Notre Dame get the highest marks for the quality of their sustainability research. Simmons School of Management, Duquesne University, and the Daniels College of Business at the University of Denver are ranked as the top three smalls schools.
Figure 1: Beyond Grey Pinstripes Rankings: The Aspen Institute offers a ranking of the top 100 global business schools “that integrate social and environmental stewardship into curricula and research."
A perusal of the financial accounting course descriptions submitted by the 149 schools that participated in the 2009 Aspen survey reveals a number that cover sustainability with considerable depth and breadth. Copenhagen Business School (Denmark), for example, offers a Sustainable Accounting and Finance course that delves into greenhouse gas accounting, the impact of environmental costs on product pricing, national income environmental accounting, and carbon dioxide permit trading. Portland State University’s course in Evaluating and Measuring the Sustainability Performance of Global Corporations helps students “develop an understanding of how the measurement of a global company’s environmental and social performance can contribute to business goals and strategies,” according to the course description.
York University’s Schulich School of Business offers at least three accounting courses with an embedded sustainability component: Advanced Cost and Management Accounting; Strategic Management Accounting and Analysis; and Accountability and Sustainability Reporting. The school’s website offers this description of the last course: “How do organizations effectively measure and communicate their performance against the triple bottom line of environmental, social and economic sustainability in a way that demonstrates accountability to stakeholders? This course provides students with the opportunity to explore the nature of corporate responsibility and accountability, and develops understanding of new models of sustainability measurement and reporting, social auditing, and assurance.”
Richard Leimsider, director of the Aspen Institute Center for Business Education, echoes Schutzman’s view that even among the most highly regarded full-time MBA programs, few have fully integrated sustainability into their curricula. Leimsider notes that the new graduate programs in sustainable management at Presidio, Bainbridge, and Marlboro are not eligible for Beyond Grey Pinstripes rankings because they are too new to have achieved the required international accreditation. Nonetheless, he maintains, they represent exciting incubators for sustainable-business study and “have really identified innovative ways to teach it in their core and in a way that is fundamental to their entire programs.”
Bainbridge Teaches Conscious Capitalism
The Bainbridge Graduate Institute’s MBA in sustainable business, for example, offers two core courses in Finance, Accounting, and the Triple Bottom Line, as well as core courses in both ecological economics and sustainable operations. The program combines distance learning with intensive weekend sessions at the IslandWood outdoor learning center on Bainbridge Island, in Washington. Bainbridge attracts students from all over North America and, reflecting the business environment of the Northwest, includes a series of courses in innovation and entrepreneurship that require student teams to build business plans and present them to potential investors. “In the process students need to learn not just the financial bottom line that primarily drives Wall Street, but also about the options for measuring results from a social and environmental perspective,” says Don Piper, who teaches a course in this series. “We also talk about ’conscious capitalism,’ which brings more heart and more spirit into the enterprise.”
Natasha Lamb, who received a Bainbridge Graduate Institute MBA in 2007 and is now an equity analyst at sustainable asset manager Trillium Asset Management in Boston, reports that she has profited on the job from the school’s “whole systems” approach. “You aren’t simply taking a finance class and then a class in sustainability. The two are fully intertwined,” she says. “In our finance courses, for example, we explored how externalized costs, like companies emitting toxins into the air, may appear to be off balance sheet. But, in reality, they may end up on the income statement as litigation costs. We also looked at how poor environmental and social performance hits the top line when a company’s reputation is tarnished.”
Presidio Students Take the Money off the Table
Presidio’s MBA in sustainable management, like Bainbridge’s, combines distance learning with monthly on-site student and faculty intensives at its San Francisco campus. According to the description on Presidio’s website, the school’s Integrative Capstone Plan course “provides the platform for students—either individually or in a team—to plan, start and build an ethical, sustainable, and profitable venture for a new or existing business, nonprofit, or governmental organization.”
John Katovich, who teaches the Economics, Capital Markets, and the Law course at Presidio, takes a novel approach to his instruction in the principals of sustainable investing. “First we do a trading component so the students are forced to think like traditional analysts with the emphasis on short-term profitability,” he reports. “But then we focus on the externalities they are missing from this perspective and who else is capturing it.”
Katovich brings in speakers from the mainstream investment community, “so students can hear what those people think about and what they don’t think about.” Finally, he invites guest speakers like R. Paul Herman of HIP Investor, who argue that the externalities ignored by the investment community are where the hidden risks and opportunities lie. “Once we hear from these speakers we all come to the same big conclusion—that there is a lot of money being left on the table now because analysts don’t understand how to think differently about externalities,” Katovich maintains. “They don’t have the tools to weigh them and apply them in their own formulas.”
Brian Bishop, a 2009 Presidio graduate, was able to make the case for sustainable investing in a compelling way when he and his teammates won first place at the Johnson School’s “SustaInvest: The Sustainable Portfolio Pitch Competition” this year. Using the analytical tools they acquired at Presidio, they constructed a portfolio of sustainable investments along triple bottom line principals. The distinguishing characteristic of their methodology was a strong focus on companies that offered solutions to social and environmental issues in one of seven interconnected categories including water, renewable energy, and human health. “We really tried to look at our portfolio as a system—we referred to Donella Meadows’s Thinking in Systems—where the product of every company worked towards promoting our sustainable vision,” Bishop reports. Bishop and his teammates used a negative screen to factor out companies involved in hazardous waste production, weapons, or tobacco, and all companies had to demonstrate a high level of CSR (corporate social responsibility) reporting. The financial screen included the traditional examination of P/E (price-earnings) ratio, beta, and evidence of strong cash flow from long-term contracts. “While even Calvert was down eight to ten percent, the Dow dropped then percent and the S&P by twelve percent, our portfolio was up almost ten percent on a three-year annualized basis,” Bishop says.
Marlboro Focuses on Finance and Investing
The Marlboro MBA in managing for sustainability is the newest of the sustainability-based graduate programs. Like Presidio’s and Bainbridge’s programs, it combines distance learning with weekend face-to-face intensives at the college’s Brattleboro, Vermont, campus (across the street from a train that serves Penn Station). Marlboro features an annual international study trip—the first year’s was to Sweden—and a somewhat more weighted focus on finance and investing than Presidio and Bainbridge.
The program’s director, Ralph Meima, notes that Marlboro not only serves socially responsible businesses in New England but also aims to train analysts for work with socially responsible investment funds and social venture capital firms based in the New England and New York area. “Our admissions trend at the moment indicates that before too long the largest concentration of our students will be from in and around New York City,” he reports.
Nontraditional Paths to the Sustainability Profession
A number of prominent working sustainability professionals did not acquire their skills through traditional programs. Heather Langsner, research director at RiskMetrics, for example, studied chemistry as an undergraduate and holds master’s degrees in industrial engineering and energy management and policy from Columbia University, where she also did coursework in the new field of industrial ecology. She is now studying for her CFA charter. Others who do have MBAs also have advanced degrees in engineering or environmental studies. Meima holds a BS in industrial engineering from Rensselaer Polytechnic Institute, an MA in international relations from Johns Hopkins School of Advanced International Studies, an MBA from the Wharton School of the University of Pennsylvania, and a PhD in environmental management from Lund University, in Sweden.
Cross-disciplinary approaches to instruction in sustainability analysis are also becoming increasingly common at many elite universities. This fall, for example, Krosinsky is teaching a new course in sustainable investing through Columbia’s Center for Environmental Research and Conservation. Yale University now offers a dual degree—an MBA and an MEM (Master of Environmental Management)—from the School of Management and the School of Forestry and Environmental Studies. Programs like these, or the University of Michigan’s combined MS from the School of Natural Resources and Environment and MBA from the School of Business, are attracting intellectually diverse student bodies and creating an enhanced setting for the study of sustainability. “There has been a growing realization at American universities in the last decade that people with technical and science backgrounds come into the MBA programs wired differently than those with social science or liberal arts backgrounds, and that has been all to the good for these programs in general,” says Mark Milstein director of the Johnson School’s Center for Sustainable Global Enterprise and lead faculty member of the school’s Sustainable Global Enterprise Immersion Learning Program for MBA students.
Samira Viswanathan, who holds an MSc in environmental management and policy from the International Institute for Industrial Environmental Economics at Lund University, has this practical advice for working professionals who want to make the transition to sustainable investing without enrolling in formal programs. She recommends three courses: product life cycle analysis, which examines the resource and energy impacts of production from “cradle to grave”; environmental economics, which links what are commonly considered externalities to their real financial impacts; and CSR reporting, which enables the analyst to distinguish between companies that are serious about incorporating sustainable business practices and those that are mere greenwashers.
The future for sustainable investment professionals looks bright for those who take the time to truly master the fundamentals. “It is alluring to work in a field where you are identifying problems around the world and looking for businesses that provide the solutions to them,” says Schutzman. “If you can do that, make money, be responsible, and make a difference, it is the best of all worlds.”
–Susan Arterian Chang is a financial writer based in White Plains, New York.