ADVANCED INSTRUMENTS FOR SUSTAINABLE FINANCE AND IMPACT FINANCING-1

This compulsory 12-ECTS course describes and analyzes the main financial instruments for sustainable finance and impact investing.
In particular, the first part (Module 1) of this course covers an overview of financial instruments and investment strategies. The second part (Module 2) focuses on Social, Impact, Green, Transition, and Sustainable financial instruments and existing methods to incorporate sustainability into investment and financial decision-making.

The instructional goal of the 12-ECTS course is to acquire the knowledge and competencies to understand, manage, and evaluate traditional financial instruments, their advanced applications for sustainable financing and investing, and the quantitative models for their evaluation.

Students are expected to know the basic elements of Financial Mathematics, Calculus, and Statistics with a Bachelor's degree in Economics level.

Module 1 – Financial instruments, derivatives and risk management

The module provides the financial foundations required to understand and evaluate advanced instruments used in sustainable finance and impact investing. It introduces the main derivative and fixed-income instruments, their market structure, valuation principles, and use for hedging and risk management.
The module covers the following topics:

1. Introduction to derivative markets: The role and economic functions of derivatives. Exchange-traded and over-the-counter markets. Main market participants and uses of derivatives: hedging, speculation, and arbitrage.

2. Forward and futures contracts. Structure and contractual features of forward and futures contracts. Operation of futures markets, margin requirements, marking to market. Long and short positions.
Hedging strategies using futures contracts. Basis risk and the choice of the optimal hedge ratio. Determination of forward and futures prices.

3. Interest rates and fixed-income instruments.Types of interest rates and compounding conventions.Zero rates, forward rates, and the term structure of interest rates. Valuation of fixed-income securities. Interest-rate exposure and the use of fixed-income instruments in investment and risk-management decisions.

4. Options and option markets. Types of options and characteristics of option contracts. Payoffs and profits from European and American call and put options. Factors affecting option prices. Upper and lower bounds and put–call parity. Option trading strategies and their risk-return profiles. Option pricing. The no-arbitrage principle and risk-neutral valuation.
One-step and multi-step binomial models. The Black–Scholes–Merton model. The Greeks and the measurement of option-price sensitivity.

Module 2 – Sustainable finance and impact investing

Building on the financial instruments and valuation methods introduced in Module 1, this module examines how sustainability objectives, ESG factors, and climate-related risks can be incorporated into investment and financing decisions. Particular attention is devoted to sustainable investment strategies, portfolio construction and evaluation, sustainable debt instruments, and impact finance.
The module covers the following topics:

1. Foundations of sustainable finance and impact investing.

2. ESG-driven investment. ESG factors, data, scores, and ratings. Main sustainable investment strategies and incorporation of ESG information into security selection and portfolio decisions.

3. Climate-driven investment. Physical and transition risks, measurement of portfolio climate exposure, portfolio decarbonisation strategies, and investment in green and climate-aligned financial assets.

4. Sustainable portfolio construction and performance evaluation. Integration of financial and sustainability objectives into portfolio decisions. Comparison between traditional and sustainable portfolios using conventional and sustainability-adjusted performance measures.

5. Green bonds and sustainable debt instruments. Sustainability-linked loans and performance-based instruments. Characteristics and functioning of green, social, sustainability, transition bonds and sustainalbility-linked loans.

6. Main impact-financing approaches and instruments. Analysis of the relationship between risk, financial return, and social or environmental impact.

1. Hull, J.: Options, Futures, and Other Derivatives, Pearson-Prentice Hall, 11e (global ed.)
Chapters: 1,(2),(3),(4),5,(7),(10),(11),(12),13,(15),(19)

2. Roncalli, Thierry, Handbook of Sustainable Finance (Last update August, 2026). Available at SSRN: https://ssrn.com/abstract=4277875 or http://dx.doi.org/10.2139/ssrn.4277875 . Contact the instructor for the details on the chapters covered.

3. Staub-Bisang, M.: Sustainable Investing for Institutional Investors: Risks, Regulations and Strategies, John Wiley & Sons, 2012, Chapters:1,2,(4),5,8

4. Discussion material made available in Moodle and used in class

*( ) only partially covered

Further readings: (optional)
Schoenmaker, D., & Schramade, W. (2018). Principles of sustainable finance. Oxford University Press.
Fisher, P. (Ed.). (2020), Making the Financial System Sustainable. Cambridge: Cambridge University Press.
Impact Investing: Killing Two Birds with One Stone? Financial Analysts Journal, 76(4), 40 -52 (2020)

The assessment consists of a written component, accounting for 70% of the final grade, and an individual oral examination, accounting for the remaining 30%.

The written component may be completed through one of the following alternative assessment routes:

a) Final written examination. The examination lasts 90 minutes and consists of exercises and different types of questions—including multiple-choice, short-answer, and open-ended questions—covering the topics addressed in both modules.

b) Continuous assessment. The final written examination may be replaced by passing two mid-term tests and submitting the two assignments required during the course. Each mid-term test covers one of the two modules. To qualify for the oral examination through this assessment route, students must pass both mid-term tests and submit both assignments by the specified deadlines. The grade for the written component is calculated as the average of the grades obtained in the two mid-term tests.

Regardless of the assessment route selected, the written component assesses students’ knowledge of financial instruments and related valuation and risk-management methods, as well as their ability to apply sustainable finance and impact-investing concepts to specific decision-making problems.

The individual oral examination covers both modules and assesses students’ understanding of the course topics, their ability to explain and apply quantitative models, establish connections among topics, and present their arguments using appropriate disciplinary terminology. For students choosing the continuous assessment route, the oral examination also includes a discussion of the assignments. Students must demonstrate a full understanding of their work, justify their methodological choices, and correctly interpret the results.

The final grade is calculated by assigning 70% weight to the written component—obtained either through the final written examination or as the average of the two mid-term test grades—and 30% weight to the oral examination. Students must pass both components. A final grade of at least 18/30 is required to pass the examination.

Any use of artificial intelligence tools in preparing the assignments must be declared and documented in accordance with the instructions provided by the instructors. Students remain responsible for the accuracy, originality, and full understanding of the work submitted.

The use of books, notes, or electronic devices is not permitted during the final written examination or the mid-term tests. A calculator and a formula sheet containing no more than ten formulas are allowed.

written and oral

The instructor is responsible for ensuring the authenticity and originality of all examinations and coursework. In cases of suspected academic misconduct, an additional on-site assessment may be required during the exams, which may differ from the standard format.

With regard to the grading scale (criteria for assigning grades), regardless of attendance:
A. Scores in the range of 18-22 will be assigned in the presence of:
-Sufficient knowledge and ability to understand applied with reference to the program;
-Limited ability to gather and/or interpret data, formulating independent judgments;
-Sufficient communication skills, especially concerning the use of specific language related to the topics covered in the program;

B. Scores in the range of 23-26 will be assigned in the presence of:
-Fair knowledge and ability to understand applied with reference to the program;
-Fair ability to gather and/or interpret data, formulating independent judgments;
-Fair communication skills, especially concerning the use of specific language related to the topics covered in the program;

C. Scores in the range of 27-30 will be assigned in the presence of:
-Good or excellent knowledge and ability to understand applied with reference to the program;
-Good or excellent ability to gather and/or interpret data, formulating independent judgments;
-Fully appropriate communication skills, especially concerning the use of specific language related to the topics covered in the program;

D. Honors will be awarded for excellent knowledge and ability to understand applied to the program, excellent judgment skills, and excellent communication abilities.

Further details and a Mock exam are available on the Moodle webpage of the course.

Teachers’ frontal lectures and discussion of case studies

Students are required to register for the related course web page of the university e-learning platform moodle.unive.it.
Additional information, updates, and further material on the course will be provided on the web page of the course in moodle.

This subject deals with topics related to the macro-area "Human capital, health, education" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development