Faced with the challenges of ecological transition, social inequality or tax justice, there are many debates about the urgency of integrating these issues in training in finance and economics. Many academics today are protesting against the model of financialization, the obsolescence of theories implying a rationality of the “homo economicus”, while insisting on the role of finance as a vector of a more responsible growth.
Should we see there a phenomenon of fashion, a new niche of differentiation, or, on the contrary, a real need for transformation of teaching models? The stakes are numerous. It is thus necessary to sort out all these discourses and to propose a model where the notion of commitment allows a radical paradigm shift.
To go through alterations to the substantive reforms
On this tenth anniversary of the financial crisis of 2008, did the courses in finance and economics really change? Progress is nil … or almost zero , as confirmed by a recent studypublished by the Veblen Institute, in association with four researchers.
Admittedly, courses on ethics, compliance (risk prevention and compliance) or corporate social responsibility have been included in training in market or corporate finance, but sporadically and without any real desire to ‘integration. If these practices change little in spite of taking into account the issues of sustainability and responsibility in the financial professions, it is certainly because this desire is not totally shared within the academic community and that the current economic model does not has not really evolved.
While financial crises have demonstrated the inadequacy of existing models in the real economy, neo-classical theory and modern financial theory still constitute the alpha and the omega of master’s courses. A dichotomous or even schizophrenic feeling develops in the student body when programs offer modules on ethics and business ethics on the one hand, and courses on the theory of market efficiency and options on the other hand. .
However, the players are numerous in search of profiles trained in the mastery of financial tools integrating the concepts of societal impact and control of global risks (financial, environmental, social, governance, strategic …). The answer is certainly in the difficulty of proposing a model involving a paradigm shift. The responsibility of the teacher then takes on its full meaning, the latter often being at the origin of the reflections that allow this transformation, as the Chicago school or the Mont Pèlerin society may have been in the advent of a financialized market company.
Transform the test
It is about going much further and engaging in a disruptive model where society is no longer just an adjustment variable aimed at reputation and image effects. The notion of integration is then indispensable. All the economic and financial course modules proposed must include sustainability as an end goal and not as the necessary intermediary for financial realization.
The concept of integration implies a full and conscious desire to give more meaning to the role of financial instruments, to their missions and to sharpen the critical spirit so as not to decorrelate the theoretical tools of the real world. Thus, topics such as macroeconomics, the history of debt and money, the epistemology of finance and financial models, geopolitics, geostrategy or corporate strategy are essential for students to understand the environment in which they interact.
Courses in risk management should systematically include the integration of extra-financial risks (ESG) (environment, social, governance) as new indicators for identifying business models that are considered hazardous, unclear and therefore ultimately dangerous from a point of view. financial view but especially from a societal point of view.
At Volkswagen Dieselgate, a responsible and integrated investor would certainly have been able to identify that the governance conflicts between the Porsche family and the other shareholders of the group would ultimately generate additional strategic and financial risk. An investor focused on analyzing past share prices as well as profitability and liquidity ratios can not have the ability to identify this type of additional risk. Result: a devaluation of the share price of more than 17% on September 21, 2015 which continues to have a long-term effect on the economic and therefore financial risk given the fines and lawsuits in progress. Ditto for cases involving the Renault-Nissan group ( Carlos Ghosn case), Lafarge (suspicion of financing terrorism and indictment for crimes against humanity ) or the scandal of Rana Plaza .
In another example, asset management courses should also include taking into account the extra-financial practices of companies in the investment universe, as well as a strategic dimension, in order to identify companies in societal transition included in a long-term logic.
The financial valuation courses must also encourage the consideration of valuation of intangible assets of companies including stakeholders (human capital, relational, organizational …). The modules on venture capital and development capital (highly prized by students) also have to offer ESG due-diligence integration models in the setting up of deals and notions of social impact measurement (concept of impact investing).
Lastly, financial trainings must go beyond the macro sphere to look more deeply at the challenges of a more micro, cooperative finance, based on principles of circular economy and in relation to the financing needs of the territories.
See finance as a tool
It is therefore a question of radically changing the paradigm by stopping the opposition between financial and responsibility in different courses. The concepts of sustainability and responsibility should not be taught in Wing A, the Wing B economy, and Finance in Wing C of the school or university. It is a matter of decompartmentalizing and thus proposing programs where societal issues are transversal and taken over as the central vector of the different disciplines.
Finance remains a tool and not a science. It is impossible today to think that a financial decision can be taken if it does not have a positive impact on society. Before thinking that the social responsibility of the company becomes “mainstream” within the training courses in finance, that it can be an element of differentiation between brands, it is especially important to understand how the tool “finance “Reencours itself in the societal goal. This will imply for the academic community to go deeply into question and thus to get out of its comfort zone.
It is a question of not reproducing the errors of the past which allowed the financialized model to absorb the societal stakes on a need for social legitimacy in post-crisis period 2008 and in a fully conservative logic. At a time when these issues have never been so important for 40 years and the advent of the financialization of the economy, the role of education as a vector of societal transformation has never made so much sense .
Author Bio: Christophe Revelli is Senior Finance Professor and Director of Corporate and Sustainable Finance MSc at Kedge Business School