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 sophisticated statistical analysis. General knowledge in mathematics and statistics for finance is 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 strong knowledge, for example but not exhaustive, 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 analyse the cash flows statement and to calculate the cost of capital under the CAPM theory.

Sustainable finance refers to a mainstream which connects financial materiality to metrics that go around the concept of sustainability, such as environmental goals (green finance) and resilience in the economy (circular economy). According to the EU, more than 60% of the EU GDP is directly affected by the sustainability goals. The course focuses on the relations amongst Finance, Green Business and Circular Economy, as well as on the opportunities this new economic paradigm offers to the Financial Services industry. It aims to feed both the theoretical and practical foundations of this financial perspective in the creation of value and explains why and how finance acts as a strategic driver for accelerating the transition toward sustainable and circular business. The mission of the course is to educate students on the financial side of this phenomenon, on the causal impact on the deal typologies inside some of the main areas of the financial business and on the changing return-risk profile that affects green and circular investments. Students also have the opportunity to enter in touch with a strand of research on Finance and Circular Economy, exploiting the existing networking that UB has with key actors in this field, such as IntesaSanpaolo (ISP) Banking Group and E. MacArthur Foundation.

The course can be split in three parts. The first part is focused on developing the main features regarding sustainable (both green and circular) business models, the opportunities offered and the impacts generated on the main business economics and risks. The second part devotes attention to carrying out a comprehensive analysis of the areas of business, inside the financial services industry, that are mainly involved. Both financer and investor positions will be analysed. The third part develops a risk analysis, focused on this kind of deals, that underlines and supports the investment decision that must be taken by a financial investor. The whole course is supported by examples, case studies and speeches from real experience and real investments.

• 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.
• How green and circular investments affect the main economics in the financial business models.
• Public finance deals and the role played by green principles and other metrics.
• Structured finance as an answer to project 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 affecting green and circular deals.
• Liability side and risk of default. Risk of default stochastic analysis and relative measures. Equity risk for shareholders as residual.
• Debt capital green and circular deals: analysis of the risks and potential returns associated with the project, 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 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 and green investments, impact investing, etc.
• Know, recognize and explain the economic and financial profile of a green/circular business/investment.
• Know the role played by Finance, its actors and deal typologies, its investment strategies.
• Master the structure techniques of some deal typologies such as green bonds, circular/sustainable loans, investments in ESG securities.
• Understanding the changing risk profile of green/circular assets.
• Design and apply a comprehensive analysis of an investment opportunity in green and circular business fields.

• Master the sustainable and circular economic paradigm and explain it to a non-expert.
• Analyse 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.
• Estimate and measure investment risk at both asset and liability 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.
• 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)

• Guest speaker's talks (in class or in distance). In the first and second parts of the course, contributions from a group of selected guest speakers allow to better understand how business actors classify and finance the green and circular business models/projects as well as how investors operate in terms of opportunities and deal structures.
• Exercises (exercises, database, software etc.). in the first part of the course some numerical applications support the convenience analysis for financial institutions in supporting the transition toward a green business and a circular economy. In the second and third parts of the course the return-risk analysis is fully supported by several spreadsheets that let the student develop both discrete and stochastic financial and risk analysis.  
• Case studies /Incidents (traditional, online). In the second part of the course some incident cases allow to better understand the main concept and practice for some financial deal techniques. In the third part, the return-risk analysis is made referring to a single investment case which shows two options: option 1 is linear and option 2 is green and circular.
• Interactive class activities. Students will be encouraged to actively participate to the class through the promotion of flipped class activities and personal contributions.

For attending students

• Final written exam with both closed-ended and open questions (weight 100%).  Assessment criteria: ability to describe and critically apply all the topics covered in the syllabus (closed-ended questions); ability to analyse, test and conclude on key topics related to the course’s field.
• Class participation: short presentations, discussions and contributions during classes are assessed. Regular attendance is a pre-requisite to get the assessment. Students who attend and participate actively during classes can receive up to 6 extra points (weight 20%). Assessment criteria: ability to actively participate in discussions; ability to offer original contributions and ideas; ability to present short topics to peers.

For non-attending students

• Final written exam(weight 100%). Assessment criteria: ability to describe and critically apply all the topics covered in the syllabus.

• Slides, excel files, selected articles and other material are distributed through the course Blackboard platform
• A collection of chapters from a bunch of textbooks are distributed through the Library Course Reserve facility.