International Economic and Financial Relations

ANNALISA DI CLEMENTE

The aim of the course is to provide students with the necessary skills that, once they are inserted in work contexts such as international organizations, Italian public bodies, in particular belonging to SISTAN, NGOs, private companies, make them able to contribute to the interpretation and analysis of sustainable development processes, through the measurement of interactions between economic, social and environmental phenomena.
At the end of the course the student will acquire knowledge and understanding of the systems of indicators developed at international (SDG) and national (BES) level to monitor the achievement of the sustainability objectives, with particular reference to the indicators deriving from the integrated economic and environmental accounting.
The acquisition of quantitative assessment tools of sustainability processes will enable the student to perform data analysis in order to understand the interactions between economic, social and environmental phenomena at different spatial scales (international and in particular European, national and sub-national) ).
The autonomy of judgment, understood as the ability to elaborate independent judgments on the main issues of sustainability through the statistical tools acquired, as well as the acquisition of autonomous learning abilities, will be developed through the drafting of term papers on some case studies. The oral presentation of these works and the discussion with the class will help the students to develop the ability to communicate information and define problems and solutions in a clear and understandable way

The course aims to study the current evolution of the role of finance in support of sustainability and to understand the role of the various players in the financial system, companies, financial intermediaries, and supervisory authorities, in promoting the consideration of ESG (Environmental, Social, Governance) factors in the choices of financial investment and financing of productive activities within a new paradigm of production and consumption. The course analyzes the empirical results on Corporate Social Responsibility (CSR) and corporate value creation to investigate the impact of considering ESG factors on corporate performance, on the price of financial assets, and on the cost of capital for companies. In addition, the course illustrates the methodologies through which to integrate environmental, social, and corporate governance (ESG) factors in the investment decisions of both institutional investors and credit institutions. This is followed by an analysis of the development of sustainable and responsible investments, SRI, such as green and social bonds traded on the Italian Stock Markets This is followed by the study of traditional financial risks which will have to be integrated by the consideration of the new climatic and environmental risks linked above all to the transition to a green economy. The course also analyzes the role of the regulatory and financial supervisory authorities in promoting an adequate culture of new risks linked above all to transition policies to govern climate and environmental changes by inserting them into the framework of the three pillars of Basel (International Accord on Banking Capital).

Expected Learning Outcomes are:
1) the in-depth knowledge of the analytical and graphical tools used in the fundamental analysis of the securities and the general equilibrium models of the capital market, as well as of the empirical tests on the validity of these models;
2) the ability to understand financial data and fundamental statistics of financial portfolios in terms of risk, return, and performance of securities portfolios;
3) the application of the financial methodologies to the evaluation of securities, investment choices, and portfolio management;
4) the ability to communicate what has been learned through the use of a technical-specialist financial language;
5) the critical and judgmental capacity regarding the policy choices made by the regulatory authorities in terms of global financial stability;
6) the ability to continue independently the analysis, study, and updating of the financial topics covered during the course through the reading and understanding of specialized financial documents and the study of international scientific papers.

It is useful for the student to know the basic concepts of statistics (mean and variance of a random variable; covariance and correlation between two random variables; the statistical tool of the simple linear regression) and the basic concepts of the mathematical analysis (linear and non-linear functions; first and second derivatives of a function).

a) From sustainable development to sustainable finance: definition and role of sustainable finance in the real economy. (2 hours)
b) Corporate Social Responsibility (CSR) and corporate value creation: impact on business performance, asset price, and cost of capital (4 hours)
c) The investment process and the determinants of the return rate: integration of environmental, social, and corporate governance (ESG) factors in the investment decisions of institutional investors. (4 hours)
d) Equilibrium Theories of Capital Markets: Modern Portfolio Theory, Capital Market Line, Market Model, Capital Asset Pricing Model, Security Market Line, Zero-Beta CAPM, Arbitrage Pricing Theory.The pricing of financial assets corrected for ESG factors. (6 hours)
e) Modern portfolio theory and the benefits of diversification. ESG indices and passive management techniques of financial portfolios. (4 hours).
f) Market information efficiency and comparison between passive and active financial investment management techniques also consider ESG factors. Development of ESG funds in the Euro area. (4 hours).
g) ESG performance assessment of issuers and products: ESG impact ratings. ESG risk assessment: ESG risk ratings (4 hours)
h) The role of banks in promoting sustainable financing: the green loan market. (4 hours)
i) Environmental and climatic risks and stability of the financial system. (10 hours)
l) Relationship between physical and transition risks and traditional banking risks. (4 hours)
m) Quantification of climatic and environmental risks for the banking system and assessment of the adequacy of banking capital to physical and transition risks (in light of Basel IV) (4 hours)
n) Systemic implications of the risks associated with the transition towards a green economy and policy choices by the Supervisory Authorities on the Global Financial System (4 hours)

The course includes traditional frontal lessons with the aid of electronic slides. During the lessons, tables, and graphs of financial data and information statements relating to issues of financial instruments such as corporate and sovereign green bonds are commented on. The course uses Moodle, accessible via elearning.uniroma1.it, as a tool for sharing detailed information on the teaching material, complementary readings, and the dates of the ongoing test and the final exam dates. In addition, the Moddle platform allows to interact with students even remotely.

Attendance is optional even if strongly recommended.

In the evaluation of the exam, the final grade is determined using the following criteria:
1) Complete knowledge of all the topics and ability to connect the issues addressed (25%).
2. Rigor and logic in illustrating the financial methodologies and their relevant applications (25%)
3. Graphic tools should be appropriately framed in the financial models (30%).
4. Use of a technical language appropriate for financial discipline (20%)

The fulfillment of the elements n.1 and n.2 is the necessary condition for achieving a score equal to 25/30. Grades above 25/30 will be awarded to students whose exam satisfies all four of the elements listed above.
For the attending students, there is an optional ongoing evaluation in the form of a written test divided into four open questions on the topics covered in class, lasting a total of 90 minutes. This written test is followed by an oral exam on the remaining course program.

For the non-attending students, the exam consists of a unique final oral exam on the entire syllabus lasting 30 minutes.

1) Explain through which propagation channels physical and transition risks amplify traditional banking risks.

2) Illustrate the evolution of the concept of corporate social responsibility and its relationship with the issue of top management remuneration.

3) Explain the use of beta carbon for active and passive management of the securities portfolio.