20553 - FINANCE FOR THE GREEN BUSINESS AND THE CIRCULAR ECONOMY
Course taught in English
Go to class group/s: 31
Class-group lessons delivered on campus
This course is also a quantitative course but it does not focus on either mathematical derivations or complicated statistical analysis. Some basics in mathematics and statistics for finance are recommended. Financial Mathematics, Accounting, and Corporate Finance are advisable prerequisites for Bocconi students. For Exchange students, having attended similar courses is warmly suggested. Students are expected to have reasonable knowledge of the basics in financial mathematics such as the time value of money, NPV and IRR; the basics in statistics such as variance/covariance and probability distributions; the basics in accounting and finance such as being able to read and analyze the cash flows statement and to calculate the cost of capital under the CAPM theory.
Sustainable finance refers to a new and growing mainstream that connects financial value to metrics that go around the concept of sustainability, such as environmental goals (green finance) and resiliency (circular finance). According to the EU, 60% of the EU GDP is directly affected by this change in the economic paradigm. As a weak proof of importance, in the finance field green bond issuance reached around US$ 120 bn. in 2017, with an expected 9% growth rate in 2018 (source Unicredit). The course focuses on the relation between Finance, Green Business and Circular Economy, as well as the opportunities the adoption of this new economic paradigm offers to financial institutions. It aims to nurture both the theoretical and practical foundations of this new financial perspective in the creation of value and explains why and how finance acts to become a strategic driver to accelerate the transition toward sustainability and circularity in business. The mission of the course is to educate students on the financial side of this new economic paradigm, on the causal impact on the deal typologies inside the corporate and investment banking area and on the changing return-risk profile combination that affects green and circular investments. Students also have the opportunity to enter in touch with a mainstream of research on Finance and Circular Economy, exploiting the networking with key actors, such as the Ellen MacArthur Foundation, a partner of Bocconi University on this topic.
- Green business and circular economy: what they are and what they do.
- Green business and circular business models: in what they differ from linear business models and how they work.
- Investment opportunities for outside investors. The concept of stranded linear assets.
- The changing profile of economics, financials and sources of volatility in the green business and the circular economy.
- Which are the financial actors and the deal typologies involved? Corporate lending, corporate finance, investment banking and asset management (C&IB).
- How green and circular investments affect the main economics in the C&IB business models.
- Public finance deals and the role played by green principles and other metrics.
- Structured finance as an answer to project/asset fund raising. Private equity and structured deals for the whole business.
- Project and business analysis: cash flow metrics and financial sustainability analysis in a deterministic approach.
- Project and business analysis: asset side and operating risk. Operating risk measures. Discrete approach and stochastic approach application to sources of volatility related to green and circular items.
- Project and business analysis: liability side and risk of default. Risk of default stochastic analysis and relative measures. Equity risk for shareholders as residual.
- Debt capital in green and circular deals: analysis of the risks and potential returns associated with the project/asset, financial sustainability and debt-holders’ risk appetite (adequacy).
- Participants involved in debt capital deals: regulatory issues, rating assignment, contractual covenant and credit enhancement.
- Equity capital in green and circular deals: analysis of the risks and potential returns associated with the investment, equity risk and return measures.
- Participants involved in equity finance deals: regulatory issues, term sheet and investment agreement, performance and IRRs.
- The future of green business and circular economy: a perspective.
- Be proficient in concepts such as green business, circular economy, sustainable investments, impact investing, ecc.
- Know, recognize and explain the specific features of a green/circular business, in particular in terms of its economics and financial profile.
- Know the role played by the financial system, its actors and deal typologies, its investment strategies.
- Reproduce the structure techniques of some deal typologies such as green bonds, project finance and private equity.
- Design and apply a comprehensive analysis of an investment opportunity in green and circular business fields.
- Master the new sustainable and circular paradigm and explain it to a non-expert.
- Analyze and determine the changing economic and financial profile of green and circular businesses.
- Find a solution to a specific fund raising problem affecting green and circular businesses at either single project/asset or whole business level.
- Estimate and measure investment risk at both asset and liablitity sides and match it with a fair price/return measure for capital-holders.
- Carry out a comprehensive return-risk analysis in order to support an investment decision process in the spheres of both finance and sustainability fields.
- Be able to successfully sustain a job assessment in the field of sustainable finance.
- Face-to-face lectures
- Guest speaker's talks (in class or in distance)
- Exercises (exercises, database, software etc.)
- Case studies /Incidents (traditional, online)
- Individual assignments
- Guest speaker's talks (in class or in distance). In the first part of the course a group of guest speakers allow to better understand how business actors understand and develop the green and circular business models as well as how financial actors operate in terms of opportunities and deal structures.
- Exercises (Exercises, database, software etc.). In the first part of the course some numerical analysis support the convenience analysis for a financial institution in supporting the transition toward the green business and the circular economy. In the second part of the course the return-risk analysis is fully supported by several spreadsheets that allow to develop both discrete and stochastic financial and risk analysis.
- Case studies/Incidents (traditional, online). In the first part of the course several incident cases allow to better understand the main concepts and practice some financial deal techniques. In the second part of the course the return-risk analysis is fully supported by a single investment case with two options: option 1 is linear and option 2 is green and circular.
- Individual assignments. Students who decide to develop the individual assignment on a specific research topic has the opportunity to put in practice and to dig more in depth one of the topics covered during the course.
For attending students who apply for the individual assignment the valuation process is divided into two parts.
- The written exam with both closed-ended and open ended questions (weight 60%).
- Assessment criteria: ability to describe and critically review all the topics covered inside the syllabus (closed-ended question part), ability to argue and critically review complex topics inside the syllabus as well as practice main criteria for the investment selection and decision processes (open-ended question part).
- The individual assignment handed out during the course and that intails the preparation of a written report max. 10 pages (weight 40%).
- Assessment criteria: ability to analyze, test and conclude on a key topic related to the course's field. The activity is carried out consistently with the methodology and approach applied in the academic and consulting research fields. The project could be also the first step of a forthcoming Master research thesis.
- In case the weighted average of both parts is lower than the mark for the written exam, students receive the latter grade (the assignment valuation is not considered).
- Moreover, class partecipation, in terms of short presentations, discussions and contributions, are assessed. Regular attendance is a pre-requisite to obtain the assessment. Students who attend and participate actively during classes can receive up to 4 additional points.
- Assessment criteria: ability to actively participate in discussions; ability to generate original contributions and ideas; ability to present short topics to the peers.
Non-attending students are evaluated only through the final written exam (weight 100%).
- Assessment criteria: ability to describe and critically review all the topics covered inside the syllabus (closed-ended question part); ability to argue and critically review complex topics inside the syllabus as well as practice main criteria for the investment selection and decision processes (open-ended question part).
- Slides, excel files, selected articles, cases and other material are distributed through the course e-learning web site.
- A collection of chapters from a bunch of textbooks is distributed through the Library Course Reserve facility. An unique textbook, which could replace the course collection, is under evaluation. Final decision is disclosed at the beginning of the course.