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Department of Finance Initiative in Sustainable Finance

Initiative in Sustainable Finance Launch Event

The Initiative in Sustainable Finance was officially launched on 5 March 2024 in the Aula of the University of Zurich.

The Department of Finance at the University of Zurich has launched the Initiative in Sustainable Finance. The project spans multiple disciplines within the field of finance and tackles pressing issues ranging from climate change and biodiversity conservation to social and governance concerns. It brings together academia, industry, policy makers and society.

Our world faces several formidable global challenges such as climate change, increasing inequality, the impact of human activities on our environment and biodiversity, or the difficult balancing of economic needs with societal needs. In these times, the integration of environmental, social and governance (ESG) factors into financial decision-making is of paramount importance. While investors have become more aware of the importance of ESG criteria in their investment decisions and, as a result, many companies have begun to integrate ESG into their operations and business strategies, there is still much to be done, both in practice and in academia.

Switzerland is one of the world's leading financial centers, managing around a quarter of the world's cross-border assets. The first sustainable financial products in Switzerland were launched in the 1980s, making it a pioneer in sustainable finance and a natural candidate to become a leading global hub for sustainable finance. A critical aspect of being a global hub is shaping the debate through academic thought leadership.

Knowledge leadership in sustainable finance

Currently, more than 40 researchers at the Department of Finance, including professors, postdocs and PhD students, work on topics related to sustainable finance and our department is already one of Europe's leading academic institutions in the field. The Initiative in Sustainable Finance organizes their research output in four main areas: Financial Institutions and Sustainability, Artificial Intelligence and Sustainable Finance, Private Wealth and Sustainable Investing, Climate and Biodiversity Finance.

The goal of the initiative is twofold, as co-directors Prof. Zacharias Sautner and Dr. Falko Paetzold explain. "Our ambition is to develop the Department of Finance at the University of Zurich into one of the world's leading research institutions in sustainable finance by 2030," says Zacharias Sautner. But the aspiration is broader, as Falko Paetzold adds: "The initiative also aims to share the contributions of the department more widely and more effectively to help industry leaders and governments make better informed choices.  At a more practical level, we also hope that our efforts will support investors in understanding and overcoming the hurdles to implementing more sustainable investments today.”

Successful launch event highlights need of additional effort

The Initiative in Sustainable Finance was officially launched on 5 March 2024 in the Aula of the University of Zurich.

After the opening statement by the Head of the Department of Finance, Pablo Koch Medina, in which he stressed the importance of the initiative for the Department, Sabine Döbeli, CEO of Swiss Sustainable Finance, gave the keynote address. She began by reviewing Switzerland's long-standing commitment to sustainable finance. She then highlighted the importance of the initiative for Zurich and Switzerland in terms of knowledge generation, the creation of a talent pool, the impact on Zurich's and Switzerland's reputation as a financial center, and its role as a catalyst for a fruitful exchange between academia and practitioners.

Following Sabine Döbeli’s keynote, three researchers from the department shared their work showing how academic research can be used to answer important practical questions. Chiara Colesanti Senni's research asks to what extent investors demand a higher risk premium from companies exposed to "natural risks", either because their operations or productivity suffer from natural disasters or because their activities have the potential to harm nature. She finds that investors seem to care about the first type of risk, but less about the second. This type of research is important because it provides guidance for regulatory measures aimed at promoting sustainable objectives in the allocation of resources.

Zacharias Sautner discussed how lobbying on climate-related regulations affects the stock price of lobbying firms. A key component of his team's research was the use of publicly available data and advanced AI-based technology to overcome the inherent opacity of a company's lobbying objectives. This allowed them to conclude that investors demand a risk premium from companies that lobby against climate regulation to compensate for the risks associated with lobbying.

In their research, Falko Paetzold and his colleagues examine the willingness of investors to pay for the sustainability impact of their investments. Their findings suggest that while investors care about the impact of their investments, they don't care as much about how much impact they achieve: How green an investment is - is less important - as long as it feels green. As a result, the growing demand for sustainable investments may not translate into improved outcomes in the real world. Promoting the use of sustainability ratings and ensuring their alignment with societal goals can be effective policy measures to remedy this situation.

Going forward, the Initiative in Sustainable Finance will promote rigorous academic research and intensify the sharing of knowledge, insights, and data on sustainable finance.

The initiative's next public event will be a conference on ESG and proxy voting in Zurich on 1 October 2024, featuring a keynote address by Prof. Laura T. Starks, Past President of the American Finance Association. The conference will be followed by a regulatory roundtable on 28 November 2024.