It’s Time for Sustainability to Become a Core Part of MBA Programs

7 February, 2024 / Articles

Recommended article from Harvard Business Review

With the advent of stringent climate disclosure regulations, corporations are in urgent need of a workforce equipped with the necessary skills to navigate new demands. Yet few professionals possess the interdisciplinary skills essential for this task. Business schools have a prime opportunity to prepare the next generation for leadership in the carbon transition. However, this task surpasses their current scope. It calls for an interdisciplinary approach, broadening beyond traditional business education.

Why Business Schools Must Step Up

A global shift is underway towards transparency in climate-related activities. The Securities and Exchange Commission (SEC) is on the brink of finalizing a new rule that will enforce mandatory climate disclosures for publicly reporting companies. Concurrently, California enacted in October climate change disclosure bills, SB261, and SB253. The Californian laws align with the European Union’s disclosure initiatives and other emerging international disclosure requirements. Others, such as those proposed by the UK Transition Plan Taskforce, loom.

California stipulates that firms report their direct emissions for 2025 by 2026; their Scope 3 emissions by 2027. Potential penalties for noncompliance could hit $500,000 per year. Firms must prepare a report disclosing climate-related financial risk and plans to alleviate them. A study estimated that 73% of Fortune 1000 companies fall under SB253 and SB 261.

However, our research shows corporate sustainability disclosure quality is subpar, with spotty low disclosure of required data and confusion on what is disclosed. Big corporations often report their direct emissions from sources like factories and occasionally pollution from their electricity consumption. However, they seldom reveal their indirect emissions, which account for three-quarters of total emissions. Among the Fortune 300, just 61.2% share Scope 3 emissions, and that data is reported inconsistently. Data gathering and reporting capabilities within companies must improve.

What’s more, assurance-related requirements will compel auditors to examine reported emissions, precipitating a surge in demand for specialized knowledge at companies and auditors. Estimates of compliance costs from SEC regulation were about $530,000, and many S&P 500 companies expect to hire additional experts in their teams. For example, Amazon already staffed professionals within the finance function to respond to emerging ESG reporting requirements, according to interviews we performed with the company.

What Business Schools Can Do To Meet the Demand

To address these challenges, business schools should revamp their curriculum to ensure it covers the specific skills that are essential for these new sustainability professionals. This involves partnerships with environmental and engineering departments to offer a more rounded education. These programs should blend expertise in environmental and climate science with essential business skills like carbon accounting, strategy, and governance. They should also actively recruit faculty who specialize in sustainability and develop programs specifically designed to fill the skills gaps identified by industry experts.

Climate mitigation and adaptation touches all the core MBA classes, and so all faculty should be encouraged to examine sustainability in their introductory courses. Strategy courses must help students define net-zero strategies and set time-bound targets relevant to the value chain. Finance courses must teach students about green bonds, carbon pricing, sustainability-linked loans, and other instruments crucial to transition, and so on. Instructors should offer experiential learning where students engage in direct data collection and analysis. In our Business & Environment class at Anderson, we have developed such an approach where students gather corporate sustainability disclosure data from actual S&P 500 companies and then provide insightful recommendations to these businesses. This hands-on approach in real-world scenarios deepens understanding and provides practical skills.

Moreover, the curriculum needs to break down the silos between disciplines. For instance, there’s a critical need for a common language between sustainability experts and accountants, who currently operate on different wavelengths. Sustainability practitioners understand how to measure carbon footprints but may be unfamiliar with internal control frameworks. Accountants aren’t trained in carbon footprint methodologies and must depend on sustainability experts.

These disconnects extend to finance departments, where CFOs bear responsibility for disclosed carbon data but may not grasp nuances of its collection or differences between models. Such integration is crucial for professionals, including CFOs and their staff, who are increasingly responsible for disclosed carbon data but often lack deep understanding of its nuances. CFOs recognize this disconnect. A forthcoming CFO survey by Accounting for Sustainability (A4S) found only 10% of finance teams considered fully capable in environmental and social considerations.

Filling the Gap

As business schools have been tardy in meeting the demand of employers for trained sustainability professionals, accounting firms and trade associations are stepping up to fill the gap. The Association of Chartered Certified Accountants (ACCA) and CFA Institute, the global association of investment professionals, launched a Climate Finance course designed by their experts. Deloitte introduced a global sustainability and climate learning program for its 415,000 employees. Clients demand “greater information and guidance on sustainability issues, approaches to addressing the climate crisis, and good corporate governance,” according to Deloitte. While notable, these efforts fall short of fully integrating scientific, managerial, and economic considerations. Frankly, they are a poor substitute for a well-administered, climate-focused MBA.

Business schools face a decline in applicants. Students, meanwhile, are keenly interested in corporate sustainability. This is opportunity. Some business schools are seizing it. ClimateCAP Summit lets MBA students explore climate change’s business implications. UC Berkeley’s Haas School of Business and the Rausser College of Natural Resources MBA/Master of Climate Solutions program are also taking initial steps.

But overall, business schools are playing catch-up in producing graduates who are adept at crossing disciplinary boundaries. They need to further integrate interdisciplinary courses into their curricula, blending environmental science, carbon accounting, and strategic governance. Business schools that fail to adapt risk being left behind, while those that embrace this integration will be at the forefront of training the next generation of leaders in corporate sustainability.