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Can student managed investment
funds (SMIFs) narrow
the environmental, social
and governance (ESG) skills gap?
Erin Oldford
Faculty of Business Administration, Memorial University of Newfoundland,
St. John’s, Canada
SMIF and ESG
pedagogy
57
Received 8 July 2021
Revised 27 July 2021
31 July 2021
Accepted 5 August 2021
Neal Willcott
Smith School of Business, Queen’s University, Kingston, Canada, and
Tanner Kennie
Faculty of Business Administration, Memorial University of Newfoundland,
St. John’s, Canada
Abstract
Purpose – The purpose of this paper is twofold. First, it endeavors to document the current state of
environmental, social and governance (ESG) pedagogy within undergraduate finance courses of business
schools, and second, it seeks to show how business schools can leverage student managed investment funds
(SMIFs) to swiftly integrate ESG pedagogy.
Design/methodology/approach – The study is comprised of two sections that use different methodologies.
The first part of the study involves a manual content analysis of undergraduate finance course textbooks, and
related instructor materials are used to estimate the average coverage of ESG-related topics. Next, a case study
of a SMIF that has recently integrated an ESG framework is provided to illustrate how this pedagogical
innovation is effective in teaching ESG skills.
Findings – The findings of the content analysis of the three most commonly used textbooks in a sample of 17
Canadian universities, as well as associated instructor material, provide evidence that the primary emphasis in
traditional curriculum remains on the shareholder, with little attention paid to ESG factors. The case study of
an existing SMIF clearly demonstrates how a student-led development of an ESG framework provides the
setting for effective, experiential learning.
Originality/value – This study shows that while traditional teaching settings, like lectures, may be slow to
adapt to the rapidly changing needs of industry, nontraditional teaching venues, such as SMIFs, can be
leveraged to meet industry demand for ESG skills, thereby closing the skills gap, enhancing student
employability and increasing the relevance of business school education.
Keywords ESG, Experiential learning, Business schools, Student managed investment funds, SMIF
Paper type Research paper
1. Introduction
Sustainable finance is the study of finance through a lens that accounts for the
environmental, social and governance (ESG) costs and benefits of a project (Fatemi et al.,
2013). In general, financial strategies have the goal of shareholder wealth maximization
(Friedman, 1970). More and more, academics and practitioners are recognizing that ESG
factors are an intrinsic element of shareholder value (Henisz et al., 2019; RBC Global Asset
Management, 2021; Glossner, 2018). As a result of the increasing role that ESG philosophy
has on investment decisions, it is gaining traction among academics, policy makers and
practitioners, alike (e.g. Alsayegh et al., 2020; Liu, 2021). Given the growing importance and
JEL Classification — A20, G11
This research was supported by funding from CPA Newfoundland & Labrador.
Managerial Finance
Vol. 48 No. 1, 2022
pp. 57-77
© Emerald Publishing Limited
0307-4358
DOI 10.1108/MF-07-2021-0317
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48,1
58
attention paid to ESG factors, along with superior returns linked to ESG (Friede, 2015; Nagy
et al., 2016; Morbiato, 2021), we anticipate that ESG issues will become increasingly important
to shareholder value and the market over time. Presently, this shift has encouraged many
firms to implement shareholder policies and practices that consider all stakeholders involved,
including the environment and the global community (Freeman and Liedtka, 1997), a
perspective generally described as stakeholder capitalism (Sundheim and Starr, 2020). Many
consider stakeholder capitalism as the best response to the social and environmental
challenges currently facing society (Schwab, 2019; Stiglitz, 2019; Hunt et al., 2020). In this way,
ESG, sustainable finance and stakeholder capitalism are closely related concepts driving
change in the investment industry and beyond.
In practice, ESG factors are used as a way to analyze a firm’s exposure to a comprehensive
set of risks and opportunities that are not traditionally incorporated into analyses (e.g. climate
risk and equitable treatment of workforce) (El Ghoul et al., 2011; Ashwin Kumar et al., 2016).
Research shows that by measuring, reporting and benchmarking ESG performance, investors
can better understand a firm’s future profitability (Freeman and Liedtka, 1997; El Ghoul et al.,
2011; Flammer, 2015; Fatemi et al., 2018). In 2014, ESG-driven investment represented 31.3% of
assets professionally managed in Canada (Global Sustainable Investment Alliance, 2018) and in
2020, that figure grew to 61.8% (CAD $3.2 trillion) (Responsible Investment Association
Canada, 2020). The growth in sustainable funds has been consistent across developed nations
(Global Sustainable Investment Alliance, 2018) and is, therefore, a sign of a rapidly changing
investment landscape. Due to the growing role of ESG in the financial industry, ESG skills have
become important to firms, investors and policy makers. ESG skills refer to the specific skillset
that facilitates the application of nonfinancial ESG factors as part of financial analysis (CFA
Institute, 2021). Some examples of ESG skills necessary to support the ESG movement include
benchmarking ESG performance, quantifying ESG risks and opportunities, and developing
and communicating ESG disclosures. Table 1 summarize central ESG skills currently in
demand by industry, and these data are based on interviews with ESG professionals along with
publicly available ESG-related job postings.
Meanwhile, media coverage shows that the investment industry “cries out for trained finance
professionals” (Murray, 2020, p. 1), and furthermore, Pronina and Rocha (2021) report that banks
and corporations are scrambling to hire people with ESG skills, at all levels of the organization.
To illustrate, PwC recently announced its intention to invest $12bn over five years to create
100,000 new jobs to support ESG reporting and advising (Dinapoli, 2021). However, the CFA
Institute (2020) performed a review of more than 10,000 LinkedIn profiles of investment
professionals and found that only 6% of profiles mentioned ESG-related skills, suggesting a gap
may exist in the industry demand for and supply of ESG skills. A possible explanation for the
skills gap is greenwashing behavior (Delmas and Burbano, 2011), where firms recruit and hire
for ESG positions (i.e. competence washing, Schumacher (2020); Minh (2021)), as a tactic to be
publicly perceived as adopting sustainable practices without actually doing so [1]. However, the
extant literature has shown that investors are becoming more sophisticated and effective when
identifying greenwashing behavior (Pronina and Rocha, 2021). Furthermore, research shows
that greenwashing is harmful to firm profitability (Szabo and Webster, 2020), and recently, firms
have begun implementing strategies to minimize competence washing, such as establishing
accepted taxonomies and minimum standards for a title of “ESG expert” (SNEU, 2021). Thus, the
ESG skills gap is likely a genuine lack of ESG skills in the current labor force.
The purpose of this study is to examine this ESG skills gap. To this end, we first assess the
state of ESG skills development within business schools by performing a content analysis of
ESG-related concepts within conventional teaching materials (i.e. textbooks and instructor
slide decks) of 17 Canadian business schools. We uncover a marked absence of ESG training
within traditional undergraduate programming. Given that the content of conventional,
lecture-style teaching methods are typically slow to adopt new material (Schlegelmilch, 2020),
Investment finance
ESG trends
ESG information
collection
ESG information
analysis
Investment analysis
Investment criteria
Investment products
Understand industry and national regulatory trends
Understand national disclosure trends
Understand ESG trends (e.g. climate volatility and real estate values; human
resource practice of hiring a short-term workforce)
Be aware of sources of ESG data and the quality of each
Determine materiality of ESG factors for a given company or industry, for example,
by employing the SASB materiality map
Understand technical elements of ESG (e.g. biodiversity and social inequalities)
Understand the methodology of ESG ratings (e.g. Sustainanalytics)
Question companies on ESG disclosure and performance
Evaluate the quality of ESG data disclosed
Evaluate the absence of ESG data disclosed
Benchmark ESG performance (e.g. past performance, peer analysis)
Perform qualitative assessments (e.g. identifying if ESG strategy is in line with ESG
performance)
Perform quantitative assessments (e.g. build ESG opportunities into projected cash
flows and build ESG risks into discount rates)
If using an exclusionary approach, establish ESG screens (e.g. percent women on
boards and carbon emission rates)
If using an impact investment approach, establish consistent approach
incorporating ESG research into investment decision-making
Understand ESG-related investment products (e.g. green bonds, ESG mutual funds,
etc.)
Be aware of and understand financial innovation trends in ESG
SMIF and ESG
pedagogy
59
Corporate finance
ESG information
disclosure
Identify current and anticipate future material ESG factors
Determine the method and frequency of disclosure
Understand industry and national regulatory trends
Understand national disclosure trends
Understand company and industry exposure to ESG risks
Understand the link between disclosure and the cost of capital
Understand the methodology of ESG ratings (e.g. Sustainanalytics)
ESG strategy
Set ESG targets
Establish internal ESG benchmarks
Measure ESG performance
Communicate ESG strategy and performance to stakeholders (e.g. employees and
investors)
Note(s): This table displays examples of ESG skills currently in demand by industry. Data is collected from
interviews with industry professions and current ESG-related job postings
particularly when the topic is still in development, as is the case with ESG in the finance
industry (Murray, 2020), we contend that an alternative teaching strategy is necessary to
narrow the skills gap. We propose an innovative solution to the state of ESG training in
business schools. We describe how a student managed investment fund (SMIF), an
experiential learning program common among many business schools (Lawrence, 2008), can
integrate ESG training to promote skills development. In this setting, ESG training can be
integrated quickly, thereby providing students with a robust skill set prior to entering
industry while also contributing to the narrowing of the ESG skills gap.
This research makes a number of important contributions to both academic research and
practice. First, the research contributes to the large body of research on the relevancy of
business schools (Muff, 2012). More specifically, our research shows how business schools
can leverage nontraditional teaching methods to become nimbler and more relevant to
Table 1.
ESG skills
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practice. Second, our research contributes to the small, albeit, growing stream of SMIF
research. Our research also answers the call by Abukari et al. (2021) for more research on
innovations within SMIFs that parallel innovations in industry, including ESG.
The remainder of the paper is structured as follows. We first provide a background on
sustainable finance and ESG factors, considering contributions from academia, policy
makers and practitioners. Next, we examine the current state of ESG-related training in the
traditional undergraduate curriculum of business schools. An account is then provided of the
experience of a SMIF program that has developed and integrated an ESG framework, as a
nontraditional, albeit potentially effective, approach to teach ESG skills. Finally, we
synthesize the findings and provide concluding remarks.
2. ESG: A brief background
The field of sustainable finance began as a niche concept, popularized in the early 1990s with
Porter’s (1991) essay “America’s green strategy”. In this paper, Porter argued that firms need
not choose between profitability and pollution reduction, and that pollution was wasteful and
damaging to shareholder value. Since then, both the academic and professional community
have continued to study and discuss the significant costs associated with inaction in
mitigating climate change (Stern, 2007; Gardner, 2015; Gencsu and Mason, 2018). In more
recent years, the field of sustainable finance has expanded its scope beyond just
environmental concerns to include social and governance factors such as inclusivity,
equity and transparency while also maintaining profitable business practices (Accounting
for Sustainability, 2019). Sustainable finance and the associated ESG factors aim to provide
investment that is focused on not just sustainability for current practices but more broadly, to
build a better world (PWC, 2019).
A growing body of practitioner and academic research shows that embedding ESG into
corporate practices is value accretive. For example, a McKinsey 2019 Global Survey on ESG
programs reports agreement among executives that ESG policies increase shareholder value
(Hunt et al., 2020). Academic research investigates the link between ESG factors and
corporate financial (e.g. Brogi and Lagasio, 2019) and social (e.g. Alsayegh et al., 2020)
performance. Evidence from this stream of research shows that businesses that implement
ESG practices have lower costs of capital (Fatemi and Fooladi, 2013; Dhaliwal et al., 2011; El
Ghoul et al., 2011), superior financial performance (El Ghoul et al., 2011) and fewer capital
constraints (Cheng et al., 2014; Hauptmann, 2017). Much of this work has concluded that ESG
factors are integral sources of firm value (Fatemi and Fooladi, 2018; Goldman Sachs, 2017;
Kahn et al., 2016).
ESG investing involves investors incorporating ESG factors into portfolio construction
decisions. This is a strategy that involves investing funds in companies that strive to make
the world a better place by working to mitigate climate change, create social good and
increase corporate transparency (Napoletano and Curry, 2021). ESG factors have been
studied in conjunction with profitable investment strategies (Ielasi et al., 2020), and studies
have found that sustainable investment has a positive effect on equity returns (Friede, 2015;
Nagy et al., 2016). Investment in firms that have strong ESG performance, while divesting
from firms that have weak ESG performance is a mixed strategy that pressures companies to
improve their practices in the hopes of attracting and retaining investors (Amenc et al., 2020).
Given their financial and social influence, institutional investors play a central role in
encouraging firms to incorporate and disclose ESG-related factors (Eccles et al., 2017; Global
Sustainable Investment Alliance, 2018; Arabella Advisors, 2018). Institutional investors are
the largest and most informed investors in the financial market. Over 1,600 institutional
investors, representing $62 trillion in assets, have signed the United Nations Principles for
Responsible Investing and are embracing ESG as the next major investment opportunity
(Eccles et al., 2017). To illustrate, in Larry Fink’s, CEO of Blackrock, 2020 Letter to CEOs, he
stated that he considered sustainability to be “at the center of our investment approach,” and
that Blackrock was taking action “making sustainability integral to portfolio construction
and risk management; exiting investments that present a high sustainability-related risk”
(Fink, 2020). In August 2019, 181 multinational CEOs of the Business Roundtable revised
their statement on the purpose of a corporation to explicitly focus their practices on a
“fundamental commitment to all of our stakeholders” rather than simply favoring only
shareholders (Business Roundtable, 2019). As empirical research continues to support the
practice of ESG being profitable (Eccles et al., 2017; Nagy et al., 2016; Fatemi and Fooladi,
2013; Dhaliwal et al., 2011; El Ghoul et al., 2011; among others), retail investors are also
increasingly attracted to firms that make sustainable investments.
Despite the shifting sentiment of ESG investment, data remain a significant barrier. The
challenge with ESG data is that there are no established standards with a curation for quality
and no accepted practice on how these data can be used (Ecceles et al., 2017). In a survey,
investors agreed that a lack of measurement standards for data was a barrier to ESG
integration, and that stronger reporting standards would provide better integration of ESG
factors (Ecceles et al., 2017). In the past 10 years, regulatory action to include ESG as a
standard in financial disclosures has accelerated significantly (Grewal et al., 2020; AmelZadeh and Serafeim, 2018); however, there is still no widely accepted standard, despite broad
agreement that there is a lack of standardized regulation around ESG integration (Eccles
et al., 2017). Currently, the SEC is considering the inclusion of more rigorous disclosure and
regulatory standards for ESG (Grewal et al., 2020).
With sustainable finance causing a shift in the investment industry, it is likely that a wide
range of professions at the various levels within the finance industry (as well as within firms)
require a deep understanding of ESG factors. The industry, however, is struggling to find
candidates with this knowledge, which suggests the presence of a skills gap (Pronina and
Rocha, 2021; Murray, 2020). In the subsequent section, we investigate business schools, the
initial training ground for many investment professionals, to assess the degree to which ESG
training has been integrated into traditional, lecture-based curriculum.
3. ESG pedagogy in business schools
The past decade has witnessed a movement in management education to integrate
sustainability, which, as Gitsham and Clark (2014) show, has been driven by industry
demand [2]. The substantial literature (e.g. Akrivou and Bradbury-Huang, 2015; Seto-Pamies
and Papaoikonomou, 2016; Walck, 2009) is dedicated to how sustainability can be integrated
into management education, and now, most business schools have sustainability courses, if
not specializations or graduate programs, in sustainability. Yet, from our search of the
literature and current undergraduate curriculum in Canadian business schools, there appears
to be little emphasis on sustainable finance and ESG factors, which could be explained by
either a resistance to change among those in the finance discipline (Raelin, 2009) or a lack of
consensus among those in the finance industry on how to assess, value and integrate ESG
into investment and portfolio analyses (Murray, 2020).
The first aim of this research study is to understand if universities are, in fact, preparing
business students to meet market demand for ESG-related skills. Specifically, we seek to
investigate the degree to which sustainable finance and ESG technical skills are, on average,
taught within introductory-level finance courses of undergraduate business programs. From
our survey of Canadian business schools, an introductory finance course is typically offered
over two terms and provides a survey of topics in corporate and investment finance, and
therefore, curriculum in these courses provides insight into the presence of foundational ESG
skills within the finance specialization of business schools.
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To investigate our first research question, we examine ESG coverage in introductory
finance course textbooks and associated instructor slide decks used within 17 Association to
Advance Collegiate Schools of Business (AACSB) business schools in Canada. We expect that
textbooks and teaching guides are illustrative of the key topics taught within the course as
many instructors rely upon textbook materials as a basis for instruction (Ransome and
Newton, 2018; Yerushalmy, 2014). Furthermore, the course textbook often represents the
collective beliefs of the profession on what is important for a particular course topic (Berry
et al., 2010). However, we do acknowledge that the evaluation of textbook content may not be
completely representative of what is being taught within the classroom by the instructor. We
also considered evaluating course outlines; however, upon an extensive search, we found that
few instructors make their course outlines publicly available.
We collected textbook data on Canadian business schools accredited by the AACSB
through university bookstore listings. AACSB institutions were included as these have
made a uniform commitment to industry relevancy (AACSB, 2020). We selected to observe
Canadian business schools because we were able to obtain a representative sample,
and furthermore, an early investigation of course textbooks in the United States
provided consistent results as the Canadian sample. Table 2 displays the adoption rates
for each textbook, and the results indicate that there are three textbooks in use at our
sample of business schools, with the dominant one being Ross et al. (2019), which is used in
74% of our sample. In addition to textbooks, we also collected associated instructor
slide decks.
We then used content analysis to assess the coverage of ESG topics in these materials.
Content analysis (Krippendorff, 2018) involves using validated dictionaries of words to
assess the language employed in written texts and has been widely used in a variety of
research fields, including finance and accounting research (e.g. Fiset et al., 2021; Kothari et al.,
2009). In this study, we use two dictionaries (see Table 3). The first is a stakeholder dictionary
established by Crilly and Ioannou (2017), where a list of terms was developed from an
assessment of stakeholder-related items of vocabulary in letters to shareholders. The terms
are divided into seven categories: shareholders, employees, customers, communities, natural
environment, government and suppliers. The second is a sustainability dictionary developed
by Wu et al. (2010) for their global study of sustainability coverage in management education.
To our knowledge, there is no validated ESG-specific dictionary, but it is our view that by
observing both aforementioned dictionaries, we provide a conservative assessment of ESG
coverage.
Citation
Ross-text
Ross-slides
Table 2.
Finance textbook
adoption
Adoption
rate (%)
Total
chapters
Estimated
total words
Ross, S. A., Westerfield, R. W., Jordan, B. D.,
73.8
26
688,275
Roberts, G. S., Pandes, J. A. and Holloway, T. A.
67,207
(2019). Fundamentals of corporate finance.
(10th Canadian ed.). McGraw Hill education
BrighamBrigham, E. F., Ehrhardt, M. C., Gessaroli, J.,
15.8
23
455,616
text
and Nason, R. R. (2017). Financial
BrighamManagement: Theory and Practice. (3rd
78,132
slides
Canadian ed.). Nelson education Ltd
Berk-text
Berk, J., DeMarzo, P., and stangeland, D. (2019).
10.4
31
769,856
Berk-slides Corporate Finance. (4th Canadian ed.). Pearson
117,554
Canada
Note(s): This table displays the textbooks and instructor slide decks used in this study. It also shows the
adoption rate of each resource by 17 AACSB business schools in Canada
Colleague(s)
Employee(s)
People
Union(s)
Worker(s)
Workforce
Consumer(s)
Customer(s)
Patient(s)
Citizen(s)
Climate
Community/-ies
Neighbor(s)
Neighbor(s)
Communities
Conservation
Emission(s)
Environment
Footprint
Greenhouse
Nature
Renewable(s)
Waste
Natural environment
Authority/-ies
Government(s)
Legislation
Legislator(s)
Regulation
Regulator(s)
Government
Constractor(s)
Manufacture(s)
Partner(s)
Suppliers
Biodiversity
Environmental health and safety
Poverty prevention
Climate change
Environmental stewardship
Race relations
Community engagement
Equal opportunity
Recycle
Corporate citizenship
Ethics
Renewable energy
Corporate environmental responsibility
Fair trade
Reuse
Corporate environmental responsibility and accountability
Gender equality
Rural development
Corporate social responsibility (CSR)
Greening
Sustainability
Culture and diversity and intercultural understanding
Human rights
Sustainable development
Disaster prevention and intercultural understanding
Market economy
Sustainable growth
Disaster prevention and mitigation
Natural resource
Sustainable procurement
Ecology
Natural resources management
Sustainable urbanization
Ecosystem
Peace and human security
Triple bottom-line
Energy
Pollution management
Waste
Note(s): This table displays the dictionaries used for content analysis of lecture materials, with Panels A and B listing dictionary words from Crilly and Ioannou (2017)
and Wu et al. (2010)
Panel B: Sustainability dictionary (Wu et al., 2010)
Investor(s)
Shareholder(s)
Shareowner(s)
Stockholder(s)
Panel A: Stakeholder dictionary (Crilly and Ioannou, 2017)
Shareholders
Employee
Customers
SMIF and ESG
pedagogy
63
Table 3.
Dictionaries for content
analysis
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Typically, content analysis employs software tools, such as LIWC (Linguistic Inquiry and
Word Count), which captures the number of dictionary terms as a percentage of the entire
text. As we did not have access to text files of the textbooks, six research assistants
performed hand-coding of all textbooks and instructor slide decks. We divided the research
assistants into three teams of two to ensure inter-rater reliability, and each team assessed one
textbook and associated instructor slide deck. Following a team’s coding, coders provided a
check of inter-rater reliability, and the inter-rater reliability in terms of agreement percent for
the first team was 95.1%, the second team was 93.3% and the third team was 96.7%. To
estimate the total number of words in a text, we counted the number of words on 20 pages and
used the average number of words and multiplied that by the number of pages per chapter
and textbook to establish an estimate of the total number of words. For the instructor slide
decks, all decks were provided in Power Point, so we were able to obtain the exact number of
words through that software. We then calculated the percentage of stakeholder and
sustainability words for each resource.
The results of our content analysis are displayed in Table 4 and are quite stark. Even
given the shift in industry over the past decade toward stakeholder capitalism (e.g. Fink,
2021), the bulk of the text and instructor slide decks pertain to the shareholder, with little
attention paid to other stakeholder groups and furthermore, sustainability. More specifically,
terms pertaining to investors dwarf those for other stakeholder groups, with investors
covered in 0.1% of the Ross et al. (2019) text, 0.2% of both the Brigham et al. (2017) and Berk
et al. (2019) texts, while other stakeholder groups and sustainability topics are collectively
represented in less than 0.05% of the texts, for all texts that we assess. The instructor slides
provide similar results. These findings provide strong support for the contention that, on
average, ESG issues are not being presented in a meaningful way in introductory finance
courses. Introductory finance courses commonly provide students with a survey of finance
topics (e.g. capital budgeting, asset pricing models, valuation, etc.), which are developed in
further depth in advanced level courses. Given the absence of ESG issues within the survey,
we suspect there may also be a similar absence in advanced level courses. That said, we do
acknowledge that ESG skills may become a specialization for some programs in elective
Ross-text
(Ross-slides)
Total words % Of text
Shareholders
Table 4.
ESG coverage
Brigham-text
(Brigham-slides)
Total words % Of text
Berk-text
(Berk-slides)
Total words % Of text
647
0.094
878
0.193
1,720
142
0.211
266
0.396
1,054
Employees
51
0.007
67
0.015
118
16
0.024
21
0.031
38
Customers
172
0.025
134
0.029
94
27
0.040
29
0.043
82
Communities
2
0.000
5
0.001
5
4
0.006
2
0.003
1
Natural environment
7
0.001
20
0.004
5
6
0.009
10
0.015
15
Government
164
0.024
229
0.050
236
15
0.022
39
0.058
112
Suppliers
93
0.014
75
0.016
105
8
0.012
3
0.004
80
Sustainability
77
0.011
17
0.004
66
8
0.012
3
0.004
19
Note(s): This table displays coverage of ESG terms in textbooks and instructor slide decks
0.223
0.897
0.015
0.032
0.012
0.070
0.001
0.001
0.001
0.013
0.031
0.095
0.014
0.068
0.009
0.016
courses, and even more, instructors may bring these topics into the classroom to complement
textbook materials.
4. A pathway forward: SMIFS as a venue for teaching ESG skills
Our second research question investigates how business schools can effectively overcome the
dearth of ESG-related training in traditional, in-class finance instruction. We propose a
nontraditional venue for teaching these skills, one that has become ubiquitous among
business schools in North America (Lawrence, 2008): SMIFs [3]. SMIF programs enable
students to manage actual investment portfolios, providing students with hands-on
investment training (Lawrence, 1990) through experiential learning (Kolb and Fry, 1974).
Experiential learning embraces “learning-by-doing” and involves observation and
reflection, formation of abstract concepts and testing of those concepts in new situations,
with each of these components of equal importance to achieving the ultimate goal of
knowledge creation (Kolb, 2014). Business schools have implemented a range of experiential,
learner-centric curriculum, including case discussions, technology demonstrations and
tutorials, games and interactive assessments (Reynolds and Vince, 2007; Szczerbacki et al.,
2000; Dolan and Stevens, 2006). Research (e.g. Bevan and Kipka, 2012) has provided evidence
that experiential learning is a highly effective approach to knowledge creation within a
variety of fields, such as talent management, leadership capabilities, change management
and entrepreneurship. Similarly, research on SMIFs has concluded that this type of
pedagogical innovation is an exemplar form of experiential learning as SMIFs facilitate direct
application of finance, accounting and economics concepts by students who are making
investment decisions that have direct and observable results (Neely and Cooley, 2004;
Lawrence, 2008; Dolan and Stevens, 2006; Ammermann et al., 2009; Arena and Krause, 2019).
Previous research, for example Charleton et al. (2015) highlights the role of SMIF participation
in career success of program alumni, which contributes further evidence that these
experiential programs are effective venues for equipping students with industry skills.
Moreover, these programs often include industry mentoring (Oldford, 2019; Rajasulochana
et al., 2019), which further enriches experiential learning and ensures an authentic learning
environment.
Given that a SMIF provides a setting for a person’s development of a deep and applied
understanding of investment concepts, we propose that a SMIF may serve as an ideal, albeit
nontraditional, setting for business schools to quickly adapt to industry’s demand for ESG
skills. We contend that a SMIF will be potentially effective in equipping students with ESG
skills because these programs are an authentic, applied experiential learning program, which
have been showed to be effective in teaching traditional investment skills (Dolan and Stevens,
2006; Arena and Krause, 2019; among others). As a result, we expect that with a robust ESG
framework, these programs can also serve as a fruitful setting in which students can acquire
ESG skills.
Existing research that discusses ESG within SMIF analysis and decision-making is small
but growing. Clinebell (2013), Ascioglu et al. (2017), Ascioglu and Maloney (2019), Saunders
(2015), Ghosh et al. (2019), and Brune and Files (2019) each discuss how ESG integration into a
SMIF has permitted students to achieve risk-adjusted returns, to mitigate risk and to adhere
to an ethical consideration within their organizations. Further, Saunders (2015) engages
students in the process of attending shareholder meetings and getting students to practice
shareholder advocacy and engagement through socially responsible investing (SRI). Clinebell
(2013) discusses the importance of SRI in investment education and provides a framework of
how it can be included as part of a SMIF program. However, each of these studies also
describes how students use ESG rankings or screens to make investment decisions. For
example, Ascioglu et al. (2017) discusses how their SMIF, Archway Investment Fund, uses the
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Sustainalytics database data for ESG rankings and scores and, to supplement ESG rankings,
compares them to benchmarks for industry holdings. While these programs are making
progress, the use of rankings and screens described by these studies circumvents the
development of a student’s analytical skills related to ESG analysis.
In the following, we describe how a typical SMIF can be agile in its integration of
ESG-related thinking, in a way that intentionally promotes the development of students’
ESG-related skills, which are of high demand in industry. Based on the experience of a faculty
advisor, industry mentors and students, we summarize the purposeful integration of ESG
within a Canadian SMIF, showcasing how the ESG framework was developed and
implemented [4]. This SMIF’s process of development and resultant framework mimics
practice and is simple in nature, and therefore, this experience can serve as a roadmap for
other business schools.
4.1 An experiential learning approach to the development of an ESG framework
Considering that industry continues to wrestle with how to assess ESG-related opportunities,
risks and benchmarks (Napoletano and Curry, 2021), it is evident that the development of an
ESG framework within a SMIF would be no small feat. In the following, we describe the
experience of a Canadian SMIF that developed and adopted an ESG framework during the
2020–2021 academic year.
In the spirit of experiential learning, the SMIF took the approach of truly embedding
students in each step of the framework’s development, and a student was assigned the title of
“ESG Analyst”. The role of this student involved leading the information gathering process
that informed the development of the SMIF’s ESG framework. To launch this project’s
development, the ESG analyst spent several weeks researching ESG trends and developing a
research briefing that was presented to other students in the program. The presentation
spurred constructive debate and served as an opportunity for both peer-to-peer teaching
(Kolb, 2014) as well as buy-in for the ESG project. Following implementation, the student ESG
analyst led the effort in implementing and supporting the new ESG framework while also
assisting other students in their integration of ESG factors into equity research. It is the
intention of the SMIF to assign this role to a new senior student each year.
Students decided that the next step involved consulting directly with a variety of industry
experts to gain greater insight into how to proceed. Leveraging this SMIF’s industry network,
as well as university alumni, seminars were scheduled with an ESG consultant, an ESG
portfolio manager, a head of sustainable investing at a large pension plan and a director of
sustainability at a publicly traded company. These conversations occurred over a one-month
period during fall 2020. A working document was created to support this information
gathering endeavor, and following each seminar, students and faculty had follow-up
discussions and contributed equally to a collaborative working document. In the following,
we summarize the key takeaways from each seminar.
4.1.1 ESG consultant. The approach to assessing the value and risk of a company’s ESG
profile is highly contingent on a firm’s industry. For example, different issues arise when
looking at a company in information technology (more social issues like cyber security)
versus energy (more climate related issues like carbon emissions). There are a variety of ways
that investment teams are currently integrating ESG: qualitative, quantitative, proprietary
check-lists or integration of all these approaches. Common among most teams is the goal of
establishing a set of the most financially material ESG issues. To be efficient in this effort, the
ESG consultant advised that students rely upon the Sustainability Accounting Standards
Board (SASB) materiality map, a free online resource commonly employed in industry (SASB,
2021). The materiality map allows professionals to quickly drill down to material ESG factors
by sub-industry (Wu et al., 2018; Khan et al., 2016). The ESG consultant suggested that
students use sustainability rankings (e.g. MSCI ESG Index or Sustainalytics) as a sanity
check, but cautioned that they must be aware of how each of these rankings are constructed
[5]. Also, the ESG consultant recommended that students try to integrate ESG analysis into
each step of equity and portfolio analysis, which will help to avoid boilerplate ESG research.
Finally, the ESG consultant recommended that, at least when beginning, students should
implement qualitative analysis of ESG factors (e.g. incorporating into investment thesis),
saving integration of quantitative analyses (e.g. incorporating into a discount rate for a
valuation) for when both industry and the SMIF program has a stronger understanding of
how to benchmark ESG performance.
4.1.2 Portfolio manager, ESG mandate. It is essential that students take the perspective
that an understanding of ESG will permit a stronger and more holistic assessment of a
company. It may be that some hidden aspects of the company are uncovered that might
provide better insight and potentially impact future returns. A firm’s investment in ESG can
result in positive outcomes for the company; for example, it can help companies avoid
litigation or enhance employee retention through better or safer working environments. An
important challenge is disclosure of ESG-related information. While many companies have
been disclosing ESG factors for some time now, others still choose not to disclose. It is
important that students also evaluate nondisclosure of material ESG factors. However, across
industries, disclosure norms and requirements are still in development, making
benchmarking quite challenging. Similar to the ESG consultant, the portfolio manager was
suggested that students consider using the SASB materiality map for identifying material
ESG factors, but cautioned that students be critical of the factors as there is company-level
variability in materiality. Again, similar to the ESG consultant, the portfolio manager advised
that students should not take sustainability rankings at face value, noting that much of the
data are self-reported. A final piece of advice was that students should attempt to drill down
to the ESG factor that will limit the company’s growth and integrate this factor into the
investment thesis and valuation, if possible.
4.1.3 Director of sustainability, publicly listed company. More and more, companies are
trying to craft a narrative that communicates their ESG strategy, risks and opportunities, and
furthermore, conversations with investors are increasingly dominated by ESG issues. As a
result, companies are being pushed for more and more disclosure, even if there is no standard
for disclosure. Some companies are taking their own initiative to establish goals and
benchmarks for reporting of material ESG issues. Similar to the portfolio manager with an
ESG mandate, the director of sustainability advised that students pay attention to
nondisclosure as a negative indicator. Companies pay careful attention to sustainability
rankings and work hard to improve scores, so students should avoid relying solely on
rankings. The director of sustainability suggested that students actively engage in
questioning companies on ESG factors, connecting directly with investor relations
departments.
4.1.4 Head of sustainable investing, large pension plan. This organization takes the view
that companies that perform well on ESG will perform better in the long-run. Further, they
view companies themselves versus regulators as best suited to be able to achieve progress on
ESG. For public equities, they construct an ESG report that incorporates any publicly
available information, marketing materials, risk section of financial statements, investments
on the horizon, corporate reputation and external sustainability rankings and reports. The
ESG report establishes their view of risks and opportunities. Because there is a lack of reliable
data, they are using these reports and other research to develop an internal database that
helps guide risk assessment and benchmarking. The head of sustainable investing noted that
while qualitative assessment of ESG factors is feasible, it is challenging to accurately
quantify these factors, so the head of sustainable investing suggested that students focus on
qualitative analysis. Similar to others, the head of sustainable investing advised that students
consult and integrate the SASB framework to determine 3–4 factors that are most material, as
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a starting point for ESG analyses. The head of sustainable investing also suggested that
students work hard to incorporate ESG analysis into each step of their research. In addition,
students should regularly scan the ESG landscape to understand any new developments,
continuously adjusting the framework as the space evolves.
4.2 The framework
Following consultations with industry and a number of follow-up discussions, the students
developed a simple ESG framework, a process that was supported by a faculty advisor. As a
first step, the students developed a guiding ESG mission statement, which included four
elements: (1) incorporate ESG-related risks and opportunities into equity and portfolio
analyses, (2) develop students’ ability to assess and practically evaluate ESG factors, (3)
engage students in responsible and sustainable investing to evoke positive global change and
shape better global citizens and (4) achieve sustainable returns on investments. A goal of the
ESG framework to encourage students to adopt an ESG lens when approaching the SMIF’s
existing investment process, which includes forming sector teams, stock picking, in-depth
equity research and presentation of a stock pitch.
After several iterations, the students established the ESG framework summarized in
Figure 1, which involves four steps:
(1) Step 1 – Identify industry materiality: The first step is to determine and understand the
material ESG factors in the selected industry. For this program, students first assess
the industry (or sometimes sector) prior to stock picking. This step involves
identifying the industry’s key ESG trends, risks and opportunities. Following the
advice of industry experts, the framework largely relies upon the SASB materiality
map [6] (SASB, 2021), though students are encouraged to investigate elements outside
of this map by researching press releases, analyst coverage and news events. At this
stage, the student should also consult ESG rankings to obtain a sense of the ESG
landscape within the industry. This research is then incorporated into the student’s
stock selection, along with other factors, including financial performance and
portfolio fit. This step ensures that ESG factors are considered early in the equity
research process and play a role in stock selection.
(2) Step 2 – Identify equity-level materiality: After the student has selected a stock, the
second step in the ESG framework is to identify the most relevant ESG risks and
opportunities that directly pertain to the equity. Working with the student ESG
analyst, the student investigates material, industry-level ESG factors from Step 1 but
now, in the context of the company, with the aim of establishing 3–4 company-specific
material ESG factors. This research involves an examination of a company’s current
and past operations, as well as the company’s current ESG strategy, with particular
attention paid to the degree of information disclosure. The student may also analyze
the company’s ESG reports, strategic plans, company filings, company news events,
on-book ESG investment, financial statements, notes to the financial statements and
analyst coverage. This step affords the student a deep understanding of companyspecific ESG performance while actively avoiding industry stereotypes.
Figure 1.
ESG framework
(3) Step 3 – Assess material, company ESG factors: Once a list of material ESG factors is
established, the student then provides a thorough qualitative assessment of the ESG
factors to determine if and how these factors might positively or negatively affect the
company’s future. If positive, the student assesses the stability of this opportunity,
and if negative, the student assesses the permanency or mitigation plans for this risk.
This is a challenging endeavor as the investment industry is still moving toward
standardized disclosure and benchmarking practices; however, students are
encouraged to examine the material factors alongside past performance and
industry competitors.
(4) Step 4 – Integrate into equity research: The final step in this framework involves
deciding how to integrate ESG factors into a student’s stock pitch. The student works
with the ESG Analyst to make this decision, and the decision is guided by the
knowledge generated in the first three steps of this framework. First, the student is
encouraged to consider if the ESG factor is an element of the investment thesis.
Otherwise, the factors may be incorporated into the competitive analysis or other
elements of the stock pitch. Upon implementation of this framework, all students are
expected to incorporate ESG factors into their final stock pitch, but the positioning of
ESG within their research is ultimately determined by the student. Students are
encouraged to employ a qualitative assessment of ESG factors, but if a student is
eager to attempt quantification, they will be encouraged to do so.
Following the stock pitch (which, at this particular SMIF, is presented verbally to the student
investment team and industry mentors), the students discuss the merits of the stock pitch,
including the merits of the ESG-related argument. In this way, the student receives direct peer
and industry feedback on ESG-related research, and this feedback is integral to effective
experiential learning. In addition, the student works alongside peers throughout the
development of the ESG research, which further contributes to a deep understanding of ESG.
Taken together, this framework is a simple point of departure for business schools to
effectively equip students with ESG analytical and technical skills, thereby quickly
responding to industry demand.
4.3 Pedagogical implications
Prior to introducing ESG analysis into the program, the students’ equity research involved a
flexible template of topics: corporate governance, competitive analysis, industry analysis, 2–4
investment theses and equity valuation (e.g. discounted cash flow, relative and related
transactions). With the introduction of the ESG framework, the demand on students
expanded since now each stock pitch required some form of integration of ESG issues. As
mentioned in the previous section, the ESG framework employed at this SMIF does not have a
uniform placement within students’ equity research so as to avoid boilerplate analysis.
Instead, the framework, guided by the program’s ESG philosophy (outlined in Section 4.2),
encourages students to employ an ESG lens to each step in their analysis, from industry
analysis to stock picking to the construction of their investment theses.
The implementation of the ESG framework did and will continue to require dedicated
instructional time and continuous research and learning, particularly since ESG is an
evolving space. At this SMIF, this is not accomplished by replacing other topics or issues
discussed. Instead, additional seminars, whether student-led, faculty-led or industry-led, have
been introduced to support learning. As a result, the number of total seminars has increased
by approximately 10%, which can be accomplished as there is no traditional lecture for this
program. In addition, the program’s industry mentors, having been involved in the
development of the ESG framework along with being involved in the industry’s ESG
movement, consistently question students on their ESG analyses and assumptions, which
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provide for further learning as student defend their work. The process of applied feedback to
applied research is a pillar of Kolb’s (2014) experiential learning cycle.
4.4 Assessing effectiveness of the ESG framework
Evidence from a variety of disciplines (for example, in geography (Healey and Jenkins, 2000),
in nursing (Hill, 2017) and architecture (Rodriguez, 2018)) underscores the effectiveness of
experiential learning programs in equipping students with practical skills. Similarly,
evidence from business schools (e.g. Mallett et al., 2010) shows that SMIFs are an effective
training ground for students entering the investment industry. Therefore, a SMIF, an
experiential learning program, may provide the ideal setting for teaching ESG skills since, as
we show, these seem to have little presence within traditional lecture-style venues. The ESG
framework proposed in this paper was implemented in January 2021, and students were
encouraged to embed ESG analyses into their stock pitches since then. As a result, students
are still in the process of developing ESG-related skills, and it is, therefore, difficult to assess
the effectiveness of the program in developing these skills. However, we collected anecdotal
evidence from the faculty advisor, an industry mentor and several students (including the
student ESG Analyst), all of which point to early progress in ESG skills development. The
following are excerpts from solicited feedback:
Faculty advisor: “Since introducing the framework, each stock pitch clearly demonstrated
integration of ESG, mainly through an analysis of ESG risks. I can see a depth of analysis on
these issues that suggests a strong understanding of how ESG is related to stock price. Often
students displayed an overreliance on information disclosed by the company, which can be
skewed. I will continue to encourage critical analysis of ESG data, and I will also encourage
students to consider how a company’s ESG factors may present an opportunity that may be
overlooked by the market.”
Industry mentor: “This is a great start, I love to see students dig into these ESG issues that
we are also struggling with in the work I do. In my opinion, the research I’ve seen on ESG so
far puts these students at a major advantage when they head to industry. From my own
experience, I’m having a hard time finding people who can do this stuff, so knowing that
newcomers will have some taste of ESG is terrific. Looking forward to seeing how these
students keep up with the evolving ESG landscape.”
Student ESG Analyst: “To adequately address ESG factors in equity analysis, the investor
must have a deep understanding of the company’s operations and how management chooses
to conduct business. Understanding how and why companies make business decisions will
ultimately lead you to understand how the company is or is not properly addressing the ESG
factors most relevant to their operations. Addressing the ESG factors at the root allows the
investor to identify what ESG factor means to the business and ultimately what impact they
will have on expected returns.”
Student Analyst: “The skill I have learned from applying the ESG framework is how to
analyze an equity with ESG at mind. It is critical to consider ESG as we need understand the
environment the company operates in and their related pressure points. I embedded the ESG
analysis into my equity research by using it as a screening tool to ensure the company I would
pitch would be compliant to ESG issues and to understand exactly what types of ESG risks
the company is exposed to.”
Student Analyst: “Especially when selecting an equity to pitch, I used ESG measures to
narrow the search and select a company. While creating my pitch, I tried to find how ESG
trends fit into my investment thesis. I learned that ESG factors might not often be directly
used to increase profit but when used in conjunction with the right business practice, they can
add value. Simply being aware of ESG risks (materiality map) and thinking about how
positive ESG practices may impact a business have affected the way I think about investing.”
Student: “I was able to learn about the SASB ESG map and was able to find elements of my
company that I would not have thought about otherwise. I learned much more about the
importance of a proactive ESG plan instead of a reactive plan. It was also interesting to look at
the ESG of my company versus their competitors and see where they sit as a leader or follower.”
5. Conclusions
With industry’s increasing emphasis on sustainable business practices and accordant ESG
factors, those in and entering the investment industry require a new set of analytical skills to
support the changing landscape. The industry, however, is challenged with finding people
with the necessary ESG-related skills, and in this paper, we examine this skills gap from the
perspective of training within undergraduate business school programs. We find that
traditional pedagogy (i.e. lectures and textbooks) provide a limited coverage of ESG topics,
and given that traditional teaching methods are slow to adapt, we propose an alternative
setting, SMIFs, where ESG skills can be acquired in way that is effective and applied while
also being integrated swiftly. Using a case study of an existing SMIF, we show how these
powerful experiential learning programs can integrate real-world ESG analysis, thereby
equipping students, who will soon join the investment industry, with skills that will
contribute to closing the industry’s skills gap.
Notes
1. We thank an anonymous reviewer for suggesting this possible explanation.
2. See for example, Financial Times’ coverage of how the Rotterdam School of Management has
incorporated a greater focus on social good (Jack, 2019).
3. For a review of the SMIF literature, see Abukari et al. (2021).
4. This SMIF follows the traditional design of a student managed investment fund, as summarized by
Abukari et al. (2021). It primarily invests in North American equity markets with a value mandate;
students operate in sector teams and take a bottom-up approach to stock selection; the student team is
constructed annually from September to August; its investments are guided by an investment charter;
it is funded by donations; and the program is supported by faculty members and industry mentors.
5. The MSCI ESG Index is designed to measure the performance of common ESG investment strategies
by re-weighting or excluding companies through their ESG criteria (MSCI, 2021), while
Sustainalytics seeks to measure a company’s exposure to industry specific ESG risks and how
effectively a company manages and addresses those risks (Sustainalytics, 2021).
6. To access the materiality map, see: https://materiality.sasb.org/
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Corresponding author
Erin Oldford can be contacted at: eoldford@mun.ca
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