Only by teaching sustainable finance can students better understand systemic risk.

Unlock Editor’s Digest for free

FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.

Abigail Herron is Head of ESG and Strategic Partnerships at Aviva Investors.

Over the past decade, business schools have increasingly provided students with an understanding of how systemic risks, such as environmental factors, can impact a company’s profitability and long-term value proposition. . By integrating these factors with other factors into decision-making, you can reduce the risks they pose and take advantage of the strategic opportunities they offer to deliver better commercial outcomes. Masu.

This is good business practice and could create a generation of business leaders who are better equipped to shift their focus away from short-term profitability and aim for long-term growth. The 2008 financial market collapse and COVID-19 economic shutdown were indiscriminate in scope and impact. Both have sharpened the realization that the biggest risks facing businesses are increasingly systemic. Researchers have long investigated, debated, and codified how companies should be organized, the role of management, and other strategic considerations. In the future, similar measures should be taken regarding such systemic risks. Systems-level thinking and education are powerful starting points for understanding broader pressures and connections, making more informed decisions, and seizing opportunities.

By teaching sustainable finance as part of a broader syllabus, students are introduced to systemic risk, the commercial risks it poses, the need for business leaders to respond, and what those actions might look like. You will be able to understand. Applying a systems risk lens involves understanding how complex systems work, how they interrelate, and why it is important to address topics such as biodiversity loss and antimicrobial resistance. I need to explain why this is even more important. What matters is the business imperative of value creation, rather than a normative view of one’s own values. This is not a question of values. This is about improving business outcomes.

Sustainable finance courses should provide insight into why companies and financial institutions have a commercial interest in facilitating the transition to more sustainable environmental and health systems. This is not only a way to reduce exposure to these risks, but also a way to create value for customers and shareholders.

My company is sponsoring a project to review business school course materials to see which offer this comprehensive “systems” perspective. This includes building a partnership with the Forum for the Future, called the School of Systems Change, to help financial practitioners learn from each other when and how to impact economic systems in the face of market failures. It is included. We also support the University of Surrey’s doctoral research program and run workshops at King’s College, London. To expand our own education, many of my colleagues and I completed the Master’s degree in Sustainability Leadership from the Cambridge Institute for Sustainability Leadership (CISL).

Good teaching is underpinned by three pillars: debating ideas, challenging consensus, and questioning orthodoxy. Students need to hear all perspectives so that they can critically and informedly evaluate the benefits and limitations of ESG-focused investment approaches and claims about systemic risk. This puts them in an informed position to make their own decisions and challenge the orthodoxy of what has historically been taught in business schools.

If business schools teach what they have always taught and think of systemic risk purely as a cost, this ignores the thinking that has developed over the past 20 years about systemic risk. Challenging and debating are core parts of growing as a business leader.

As employers of business school graduates, we see significant benefits in a syllabus that evolves as our understanding of performance and its impact increases. Leveraging these pillars to advance understanding of systemic risk will be of great value to future leaders. The best new hires demonstrate that they can use the three pillars to analyze sustainability challenges and find solutions through multiple approaches.

They combine dynamic debate, a deep understanding of the most troubling systemic risks, and a talent for finding commercial solutions. Future business leaders equipped with these skills will be better equipped to collaborate and act responsibly with other stakeholders. Addressing systemic risk is a shared responsibility and is only possible with broad understanding.

Business school rankings have traditionally focused solely on graduate student salaries and alumni ratings. The evolution of the FT rankings, which now includes broader indicators such as net-zero education in its MBA rankings of business schools, is a step in the right direction. This will be further strengthened by reflecting the full integration of systemic risk and sustainability in the syllabus. If business schools are to equip students with the necessary skills, this should not be seen as an optional extra module or a checkbox to meet standards.

Business schools strive to prepare students for success. Evolving definitions of success that include understanding the sustainability of financial systems, the real economy, and the societies and environments on which they depend will support the next generation of business leaders in driving future growth.