20553 - FINANCE FOR THE GREEN BUSINESS AND THE CIRCULAR ECONOMY

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 necessary. Financial Mathematics, Statistics, Accounting, and Corporate Finance are given 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 build, read and analyze the cash flows statement and 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$ 513 bn. in 2020, with an expected 168% growth rate in 2021 (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 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 ISP Banking Group and E. MacArthur Foundation, partners of Bocconi for 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).
• 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. Linear risks. 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, circular/sustainable loans and private equity.
• Understand the chaning risk profile of green/circular assets.
• 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)
• Interactive class activities (role playing, business game, simulation, online forum, instant polls)

• Guest speaker's talks (in class or in distance). Mainly in the first part of the course, contribution from a bunch of guest speakers allows 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.
• Interactive class activities. Students will be encouraged to actively partecipate to the classes through the promotion of flipped class activities and similar ones.

For attending students the valuation process is divided into two parts.

1. The written exam with both closed-ended and open questions (weight 100%).
   • Assessment criteria: ability to describe and critically review all the topics covered inside the syllabus (closed-ended questions).
   • Assessment criteria: ability to analyze, test and conclude on key topics related to the course's field.
   • Being an attending student implies compulsory to take the exam in person and not in distance.
2. 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 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 questions).
• Students who will take the exam in distance will be considered as non-attending students.

• 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 could be distributed through the Library Course Reserve facility (TBC).