Climate and social emergencies: towards a revolution in financial education?

Finance Reconsidered

publication date 13/03/2023

On the occasion of the forthcoming publication of Ecological Money and Finance. Exploring Sustainable Monetary and Financial System (Springer Nature, 659 p.), Thomas Lagoarde Segot, Professor of Economics and International Finance at KEDGE Business School and Director of SDSN France's Economics Committee, explores ways of rethinking the teaching of economics and finance in the face of climate and social emergencies.

He answers three questions to present this international publication, the fruit of 4 years of collective work.

What is your view on the basis of today’s finance and monetary system teaching?

The teaching of economics and finance seems still stuck in a vision inherited from the 1990s. The discipline of finance is struggling to integrate new macroeconomic and monetary approaches, and more generally societal issues, into the scope of its teaching. But faced with the economic, climate and social challenges of the 21st century, a new consensus seems to be emerging regarding the need for a refoundation.

Back in 2018, the Veblen Institute published the results of a major survey of 200 French academics entitled Ten years after the 2008 financial crisis, how do we teach finance? Despite the radical upheaval caused by the subprime crisis, this survey pointed out that, a decade later, finance was still being taught in the same way... 

Then, in 2022, the Shift Project published its major report Climat Sup Finance. Forming for a finance at the service of the transition, submitted to the Minister of the Economy. The report unambiguously calls for a rapid shift in the way students and professionals are trained to meet the new challenges of climate change and sustainable development.

Why is there an urgent need to review this teaching?

Finance is the brain of the economy. If we are to keep global warming below 2°C by 2100 and achieve the Sustainable Development Goals (SDGs), we will also need to change the financial system. Over the past ten years, some financiers have attempted to green existing financial models, but without questioning their relevance. But this approach is clearly a lost illusion. Some studies indicate, for example, that only 0.5% of "green" assets are really aligned with the objectives of the Paris agreements. This is hardly surprising, given that today's context is fundamentally different from that of the 1970s, when the great financial precepts still taught today first appeared.

To meet the new challenges of climate, nature and society, we need to rethink our assumptions, models and tools in depth, and question their purpose at every level, from the micro to the macro. We need to take a fresh look at credit, money, interest rates, international trade, international finance, macro-modeling, corporate governance, investment selection and evaluation processes... from the perspective of the SDGs. In short, sustainability requires a new "scientific revolution" in economics and finance.

How do you get there?

It's a formidable task that can only be achieved by multiplying international partnerships for sustainable development, as stated in SDG 17. The SDSN France network, created by KEDGE Business, CY Paris Université, and Paris Sciences et Lettres in 2018, and placed under the aegis of the United Nations, is a good example. It enabled us to set up a commission of academic and professional experts. From our very first meetings, we decided to build a new textbook that would combine, as recommended by the Veblen Institute report, the "macroscopic" (to refound the teaching of financial and monetary economics thanks to the social sciences) and "microscopic" (to rigorously analyze the new ecological financial actors and instruments) approaches.

To bring this project to fruition, we were also fortunate enough to be able to draw on the support of KEDGE BS's Grande Ecole Program, which enabled us to transform the fundamental 1st year economics course into a course in Ecological Macroeconomics (a first in the world of Grandes Ecoles). This course formed the cornerstone of the project, which was then supplemented by contributions from some fifteen specialists, all of whom are currently working in French Grandes Ecoles and Universities, to produce this manual of almost 700 pages and 24 chapters, which will also be published in French in 2024.

About the book

Jeffrey D. Sachs, Chairman of the UN Sustainable Development Solutions Network, Professor at Columbia University:

"Our new era of sustainable development also calls for a new era of economics and finance textbooks.  Bravo to the authors of this exciting and pioneering book, which shows new ways to rethink the financial system and its ethical foundations to align with the Sustainable Development Goals and the Paris Climate Agreement."

Brian Lucey, Professor of Finance, Trinity College Dublin, University of Dublin:

"This handbook and the philosophy behind its creation represent an integrated approach to placing nature and humanity at the heart of economics and finance. Erudite, complex without being overly opaque, and above all stimulating, it should become a key text for the reconquest of economics and finance as anthropocentric social sciences."

Nicolas Dufrêne, Director of the Institut Rousseau:

"This book is an essential contribution to the development of humanist and ecological economic thinking.