Interview with Prof. Michael Halling, holder of the Chair in sustainable finance at the University’s Faculty of Law, Economics and Finance
Home to the world’s first and leading platform dedicated exclusively to sustainable finance, the Luxembourg Green Exchange, Luxembourg is both an early adopter and leader in this area. In 2020, the University of Luxembourg launched an endowed Chair and Research Programme in Sustainable Finance at the Faculty of law, Economics and Finance to drive teaching and research in this rapidly developing field. The Chair, held by Prof. Michael Halling, is funded jointly by the Ministry of Finance and the Ministry of Environment, Climate and Biodiversity.
Why is sustainable finance important for Luxembourg?
Despite the current backlash, sustainable finance is here to stay. Many of its dimensions are important to ensure that we will be able to maintain or further grow our living standards in the long run. Becoming a leader in sustainable finance is a good strategic choice for Luxembourg in order to increase its competitiveness.
What potential benefits does it offer?
Sustainable finance brings a more holistic approach to financial decision making. It is crucial to maintain the focus on economic measures such as returns and profitability while also acknowledging that other considerations in the E- and S-space are relevant, either because they are directly linked to economic considerations, such as the management of your investments’ exposure to climate hazards, or because retail investors and clients of financial institutions care about these issues. Thus, sustainable finance offers many opportunities for banks and financial players to differentiate themselves from their competitors. Of course, these benefits can only be secured if financial institutions take these activities seriously and do not engage in greenwashing.
What do you want to find out in your research?
Our research currently centres around two key questions. The first is about how to create high-quality measures of firms’ exposures to climate risks. Here we are trying to develop machine learning techniques that extract such information from news or earnings call transcripts. The second is to better understand how investors’ preferences for sustainability, such as to avoid investing in firms that use fossil fuels, interact with traditional income-oriented preferences and affect investors’ trading behaviour and asset price dynamics in financial markets.
Can you give an example of your collaboration with the financial centre?
We collaborate quite intensively with the Luxembourg Sustainable Finance Initiative (LSFI). For example, we participated in an LSFI working group on Climate Measurement and Reporting, together with representatives from the financial industry. The group evaluated various international measurement standards and frameworks and issued specific recommendations for two of them with the understanding that financial institutions in Luxembourg will be incentivised and supported to adopt those.
How does the University and its endowed chair contribute to education and training in sustainable finance in Luxembourg?
We offer educational programs in sustainable finance on all levels. In particular, we run a track in the 2nd year of the Master’s in Finance and Economics program in which students can specialise in sustainable finance and receive a full semester of courses on this topic. Similarly, we offer an 8-day certificate in sustainable finance that targets professionals who would like to increase their knowledge in the area. Through both of these programs, we have created a sizable network of alumni in sustainable finance where most of them work for financial institutions in Luxembourg.