Dossier: Sustainable Finance and Reporting
cum tempore (c.t.): The Dossier Series for Science, Research, and Teaching at Leuphana
2024-01-01 At this point, we would like to take a little more time than the standard academic quarter and introduce our new series "cum tempore (c.t.)", which will explore Leuphana's archives. Inventions, new findings and projects are the results of long, often challenging processes. The new cum tempore (c.t.) dossier aims to place research reports, news and portraits in a wider context: How do economic players in the Global South benefit from the research successes of the Institute for Sustainable Chemistry? What can Sustainable Finance and Accounting do for a stable economy? What makes Leuphana's original study model a successful concept? From now on, you will find detailed insights into research, teaching, and academic life at Leuphana University Lüneburg right here.
- Professor Velte, why do finance and reporting need to become more sustainable?
- Empirical research shows that there is still room for improvement in sustainability reporting, even by listed companies in Germany. The area of environmental risks in particular is often still categorised as irrelevant in reporting and climate targets in sustainability reporting are not sufficiently addressed using scientific methods (science-based targets). Against this backdrop, the EU published a new directive on sustainability reporting in 2022 (CSRD), which for the first time also addresses medium-sized (non-capital market) companies. The CSRD is intended to significantly improve the quality of environmental and social reporting. In future, companies will also have to specify how their business model and strategies contribute to the 1.5° target under the Paris Agreement. At the end of 2023, a further directive on sustainable due diligence obligations in the value chain (CSDDD) was adopted in the EU trilogue, the adoption of which by the EU Council is questionable due to Germany's veto, among other things. This raises the question not only of sustainability reporting, but also of sustainable corporate strategy and operational implementation in the internal risk and control systems. If we do not consistently switch our corporate accounting and finance systems to green, a sustainable corporate strategy will not succeed. Finance and accounting are just as important for sustainable corporate transformation as strategy and business model development.
- You say that companies must not only move from shareholder value to stakeholder value, but should ideally prioritise public value, i.e. benefit society as a whole.
- Yes, and that also applies to the entrepreneurial perspective. Let's take the well-known Bayer case. The share was long regarded as a profitable investment - until Bayer’s acquisition of the glyphosate manufacturer Monsanto and in its wake a huge wave of lawsuits that hit the company. The merger was legal, but for a large part of the public it was illegitimate. Since then, Bayer has suffered a massive loss of reputation. Listed companies are now stigmatised if they are not managed in a socially and environmentally conscious manner. The damage caused by negative media coverage is immense. In addition, the risk of legal action by NGOs and institutional investors is increasing. Take, for example, the successful climate protection lawsuit against the Shell Group in the Netherlands or the replacement of climate-passive board members at the US oil company Exxon. No board of directors wants negative CSR publicity. At the same time, a non-sustainable corporate philosophy not only means a loss of many investors, but also losing the competition for the best young employees. The new generation of students pays a lot of attention to environmentally and socially responsible working conditions and may no longer apply to "dirty firms".
- How does your research reflect the changing understanding of the need to take greater account of sustainability in reporting?
- I now publish very little on conservative financial accounting and auditing topics. Gender and diversity research, for example, has become very important to me, and I work on a wide range of sustainable research topics such as sustainable management board remuneration, sustainable appointments to management boards and supervisory boards, or the auditing of (integrated) sustainability reports. My students and doctoral candidates also prefer to conduct research on sustainable finance and accounting topics in their seminar papers, theses, and dissertations. I also like to get involved in current regulatory processes, e.g. when German legislation has to implement sustainability requirements from Brussels again. In future, this will apply, for example, to the implementation of the two aforementioned EU directives on sustainability reporting and on sustainable due diligence obligations in the value chain, which have a significant influence on my research and teaching.
- The English-language and research-orientated master's programme "Management & Sustainable Accounting and Finance" was developed for the Leuphana Graduate School. Why does the topic of sustainability need to be at the centre of your studies?
- It is not enough for students to take just one ethics course in their master's programme as an "island module". Social and ecological sustainability must be firmly anchored as topics in discipline-based management theory, and in finance and accounting. There is a strong interdependence between ecological, social and financial performance ("business case") from both a research- and a practical perspective. With our master's programme at Leuphana, we want to create career and research prospects for sustainable managers and employees in finance and accounting. They can only make companies more sustainable if they successfully integrate sustainability into finance and accounting from a strategic and operational perspective. This also sets us apart very well from other master's programmes at Leuphana, e.g. the generalist Entrepreneurship master's or part-time study programmes at the Professional School, e.g. the MBA Sustainability Management.
- Of course, successful corporate management and profit generation are also part of the master's programme as "basics". We don't just want to talk about the environment and social issues. But today's managers must consistently include and balance the heterogeneous stakeholder interests in their financial goals. In my opinion, this is also the duty of listed stock corporations in Germany. The demand for social and environmental issues (sustainable investors) is also increasing on the part of investors. In corporate practice, "say-on-climate votes" are increasingly being held, meaning that investors vote on the climate protection policy of listed companies. Companies, for example, can no longer afford to ignore or subordinate investor demand for useful climate information. We want to pass this on to our students as an impetus and encourage them to reflect critically. Leuphana's appointment policy has also enabled us to attract more and more professors to our School of Management and Technology in recent years who prioritise responsible management and sustainability in their research and teaching programmes. This shows that the topic of sustainability has also become a cross-cutting issue in our faculty. We therefore want to work even more closely with the School of Sustainability in research and teaching in the future.
Contact
Prof. Dr. Patrick Velte
Universitätsallee 1, C6.309
21335 Lüneburg
Fon +49.4131.677-2117
patrick.velte@leuphana.de