CISL: Why Finance Leaders Must Learn More on Sustainability

According to the World Economic Forum, environmental and social risks are the most significant threats to the global economy over the next decade. 

Dr Tanja Collavo is the Director of three postgraduate programmes at the Cambridge Institute of Sustainability Leadership (CISL).

She has taught courses on social entrepreneurship, sustainability, systems thinking, strategy and general management to undergraduate, postgraduate and executive audiences.

In 2022, Tanja published the book “Foundations of social Entrepreneurship: Theory, Practical Tools and Skills”, currently used as a textbook in undergraduate and graduate courses across Europe and the US.

Following Tanja's blog on why finance holds the key to a sustainable future, she shares her expertise on sustainability and finance leadership with Sustainability Magazine.

How do sustainability and finance leadership intersect?

Finance leadership is one of the primary enablers, or barriers, to sustainability. Because finance determines what gets funded and to what extent, it dictates what is prioritised in governance and strategic decision-making, particularly in publicly owned companies. Without the finance sector pushing toward sustainability, business leaders will always struggle to prioritise long-term transitions over short-term pressures.

Conversely, sustainability leadership is incredibly valuable to bankers, insurers and asset managers. It encourages a long-term perspective and an understanding of the interconnections between global issues. By mastering these connections, finance leaders can gain a competitive advantage, better managing risks and identifying opportunities related to climate change, resource depletion and social shifts. Those who first identify and invest in profitable, sustainable business models will be best positioned to succeed.

Where is finance already working for sustainability and what needs to change?

While I often feel the sector could do more, objectively, there has been significant progress. We’ve seen the rise of green finance, blended finance, ESG investing and sustainable venture capital. These mechanisms have spurred the growth of purpose-driven startups and funded critical projects in renewable energy, electric vehicles and decarbonisation. Additionally, finance has provided banking and credit services to millions of people at the Bottom of the Pyramid, thereby supporting economic development where it was needed the most.

I am also encouraged to see more asset managers asking corporations to include ESG metrics in their main accounts. However, the core of what must change is incentive structures. Unless we shift away from prioritising short-term profit maximisation at all costs, the pace and scale of the sustainability transition will remain insufficient.

What are the key benefits of a sustainable business education for finance professionals?

There are three primary advantages:

1. Adopting a systemic perspective: Humans are naturally poor at predicting "tipping points" because sustainability risks often take time to manifest and do not hit all regions equally. Systems thinking helps professionals understand how issues like climate change trigger other issues such as social instability or food insecurity, allowing them to better prevent and reduce risks for their allocated capital or to spot opportunities before others do.

2. Peer networking: Entering a classroom with business leaders from diverse sectors allows finance professionals to understand the real-world constraints and contexts of the companies they invest in or insure.

3. Awareness of innovation: Education exposes professionals to upcoming financial products and mechanisms that support sustainable development profitably, triggering ideas for new opportunities to generate value beyond just economic gain.

What does "good" sustainability leadership look like for a finance leader?

First, it is the ability to listen to different stakeholders and make sound, responsible decisions that provide value for both society and the environment. When people feel the finance sector empowers rather than detriments them, it creates the stability necessary for economic growth.

Second, a good leader promotes the fact that natural and social capital are fundamental to economic capital. Resource depletion and social unrest eventually lead to institutional breakdown and war, which ultimately impede capital flows.

Finally, it is about leveraging traditional strengths of finance professionals — numbers, scenario planning and risk evaluation — to create value for a broad range of stakeholders, not just shareholders.

How can sustainability considerations be better included in capital allocation?

To some extent, this is already happening out of necessity. Climate change is making certain areas uninsurable and social unrest and poor health have been disrupting supply chains. The reality of an unsustainable world is forcing capital to move.

However, we cannot wait until a crisis is at our doorstep to act. We must become comfortable making decisions with imperfect information and complex trade-offs. As long as we remain open to learning and are willing to correct course when we see our actions contributing to systemic collapse, we can move finance toward a more sustainable future.

Explore Tanja Collavo’s latest thinking on sustainable finance and learn how CISL empowers leaders to drive systemic change. Read her blog and discover more about CISL's work: Why finance holds the key to a sustainable future.