Closing the Gaps Between Finance and Sustainability
Shown above is the Key Panel Session video recording. Click here for videos of the other sessions.
Date & Venue: 17-19 January 2018, University of Zurich, Rämistrasse 71, 8006 Zurich, Switzerland; Room: Aula KOL-G-201
Aim and scope. Reconciling sustainability and finance requires narrowing the current gaps between analytical methods, financial instruments and governance processes. Following the success of our 2017 academia-focused conference, we now expand the discussion in the FINEXUS 2018 Conference to include policy makers and industry professionals.
This three-day conference (January 17-19, 2018) bridges academic research, industry and policy expertise. Practitioner sessions present success stories from leading experts and discuss how the insights from research could help to address the challenges faced by the financial industry and by policy makers. Research sessions report the latest findings from leading scholars in the field and discuss the future avenues of research.
The Key Panel Session on Thursday January 18, 2018 gathers on stage some of the most influential experts to discuss the progress made so far by the public and the private sector towards sustainability and financial stability, and to examine the challenges ahead in terms of methods, financial instruments and governance processes. Speakers include: Prof. Joseph Stiglitz (Columbia University), Mr. Graeme Maxton (Secretary General of the Club of Rome), Ms. Mafalda Duarte (Head of Climate Investment Funds), Mr. Christopher Steane (Global Head of Lending Services at ING), Mr. Urban Angehrn (Group Chief Investment Officer and Member of the Executive Committee at Zurich Insurance Group).
The final program is available on the same page.
Research and policy context. While sustainability and climate action have taken center stage in the media and the policy discussions, the majority of financial capital remains allocated today into economic activities that are misaligned with the objectives of the UN Sustainable Development Goals (SDG) and the Paris Agreement’s 2C target. At the same time, for the financial system to be aligned with sustainability objectives it has to be aligned, in the very first place, with financial stability objectives. Remarkably, the financial crisis of 2008 has exposed the critical weaknesses arising when interconnectedness and complexity in the financial system go too far. Ten years after, several scholars and regulators warn that these weaknesses have been patched but not addressed at their root.
On the one hand, addressing these gaps requires to enhance standard financial metrics to encompass sources of risk currently not considered, such as climate risk. It also requires to go beyond the standard finance approach to risk-return by introducing metrics of impact in order to assess the contribution of portfolios to sustainability and stability objectives. Moreover, given the interconnectedness of today’s business, these enhanced metrics of risk and impact need to be based on network models of both investment chains and supply chains. On the other hand, in light of the lessons learnt from the financial crisis, the development of new financial instruments and the governance processes needed to move towards sustainable finance can greatly benefit from models of endogenous networks of strategic economic players. Indeed, common to the gaps both in sustainability and financial stability is the tension between individual incentives and policy objectives at the system level. In this respect, the discipline of financial networks, which analyses the structure of financial interdependencies among economic actors, offers novel and valuable insights on how to measure and smoothen this tension. Fields of applications of financial network-based tools range today from the analysis of the financial stability of derivative markets to the integration of climate risk into standard stress-test methods for individual financial institutions.
While traditional economic approaches to Climate-Finance have the clear merit to cast fundamental questions about climate risk and climate-policy risk in the context of economic incentives analysis, they tend to give too little attention to aspects such as information asymmetries, market power and regulatory capture. Furthermore, the financial system is regarded as an aggregate sector where the interactions among financial institutions are neglected and money is essentially irrelevant. With the ultimate goal to provide insights into the political feasibility of policies, the complexity approach to climate risk aims to provide a complementary framework in which some of the classic assumptions are relaxed. It becomes then possible, to assess risks and benefits at the micro-economic level of individual financial institutions, in particular for those that have either systemic relevance such as large banks, or welfare implications for ordinary citizens, such as pension funds.
EU Research DOLFINS. This year’s edition of the conference coincides with the final conference of the EU funded DOLFINS project, which has been delivering insights rooted on complementary economics approaches, including financial network models and stock-flow consistent agent-based models. DOLFINS has developed innovative metrics to integrate into traditional notions of risk some crucial aspects of sustainable finance, such as the systemic risk resulting from financial interconnectedness. DOLFINS has also developed a climate stress-test methodology that allows to assess individual institutions’ exposures to transition risk from climate policies. Finally, DOLFINS has developed models that allow to make an assessment of the future impact of monetary and fiscal policies in terms of investments in the green sector and in terms of inequality.
Institute of New Economic Thinking. The conference is also supported by the Institute of New Economic Thinking through its Task Force on Financial Stability directed by Prof. Joseph Stiglitz (Columbia Univ.)
Program Committee. Alexander Barkawi (CEP), Stefano Battiston (UZH), Marc Chesney (UZH), Pablo Medina Koch (UZH), Irene Monasterolo (WU), Katharina Serafimova (Social Entrepreneur).
Acknowledgements. The conference is supported by the EU project DOLFINS (grant no. 640772) coordinated by Prof. Battiston (University of Zurich), as well as by the Institute for New Economic Thinking (Research Program on Financial Stability, directed by Prof. Joseph Stiglitz, Columbia University)
The conference is comprised of several practitioner panel sessions on Thursday 18 and Friday 19 focusing on the following industry and stakeholder groups: asset managers, pension funds, development banks, central banks. Wednesday 17 and Friday 19 also include several research sessions, research and practice sessions, and one a policy and research session. For the list of speakers and their biographies click here.
Wednesday, 17th January
08:30-09:00 Welcome to the conference and introduction to the DOLFINS project. Stefano Battiston (UZH)
09:00-09:45 Keynote Session. Carlo Jaeger (Professor, Global Climate Forum)
09:45-10:15 Coffee Break
10:15-11:15 Research Session: Assessing financial stability policies in macro-economic models [detailed session description] Traditional economic approaches to macro-economic policy modeling have long been a reference for policy makers because they cast policy assessment in the quantitative context of economic incentives analysis. However, they tend to give too little attention to crucial aspects that are essential to assess the full impact of policies aimed at economic stability. These aspects include unintended amplifications effects within and across sectors, information asymmetries and the emergence of income inequality. In turn, capturing these aspects requires a complementary modeling approach that accounts for heterogeneity and interaction across agents as well as feedback loops among sectors. Furthermore, in the traditional approaches, the financial system is regarded as an aggregate sector where the interactions among financial institutions are neglected and exposures are netted out. The session examines recent insights on macro-economic policies for financial stability arising from a new strand of research based in particular on stock-flow consistent agent-based macro-economic models.
Moderator: Mauro Napoletano (Professor, SciencesPo)
Speakers: Daniele Giachini (PostDoc, Sant'Anna School of Advanced Studies), Mattia Guerini (PostDoc, OFCE), Lilit Popoyan (PostDoc, Sant'Anna School of Advanced Studies), Chiara Perillo (PhD Student, UZH)
11:15-12:30 Research Session: Assessing green growth policies in macro-economic models [detailed session description]. This session shares some of the methodological approaches of the previous one but examines the impact of monetary and fiscal policies in terms of investments in the green sector and in terms of the conditions allowing for the emergence of green growth pathways for the economy.
Moderator: Andrea Roventini (Professor, Sant'Anna School of Advanced Studies)
Speakers: Francesco Lamperti (PostDoc, Sant'Anna School of Advanced Studies), Antoine Mandel (Professor, Paris School of Econ.), Irene Monasterolo (Professor, Vienna Univ. of Econ. & Business), Gesine Steudle (PostDoc, Global Climate Forum), Bjarne Steffen (PostDoc, ETH).
12:30-14:30 Lunch Break and Poster Session (in Lichthof).
14:00-14:30 EU Research Session. Sustainable finance and the FET Flagship. Guido Caldarelli (Professor, IMT Lucca)
14:30-16:00 Research Session: Sustainable finance and citizens [ detailed session description]. Sustainable finance cannot abstract away from the concept of citizens because the social dimension is key. This session examines the role of civic society in sustainable finance and the implications of sustainable finance for society, covering the following topics. First, the findings of recent surveys and experiments shed light on the drivers and barriers for citizens to engage in savings and investments associated with sustainability objectives. Second, the structure of the social network of actors investing in sustainable finance and in particular in impact investing helps understanding how information flows in this community. Third, the network of lobbying organizations turns out to be a crucial aspect for understanding the process of EU consultations in the policy areas of finance and climate. Forth, understanding citizens’ perception towards sustainable finance benefits a great deal from the analysis of social media and polarization of opinions in online communities. Finally, the global monetary system is changing and the future scenarios affect how we think of sustainable finance already today.
Moderator: Giulia Porino (Finance Watch)
Speakers: Luisa De Amicis (COO, Plus Value), Armin Haas (Professor, Institute for Advanced Sustainability Studies), Hannah Kitcher (Young Foundation) , Borut Sluban (PostDoc, UZH), Hamza Zeytinoglu (Senior Consultant, Bosphorus University)
16:00-16:30 Coffee Break
16:30-17:30 Research and Practice Session: Data and methods to assess climate risk and impact [detailed session description]. There is growing consensus on the fact that sustainable finance needs appropriate and systematic methods to measure progress towards climate action at the level of project portfolios in order to provide actionable information. In particular, progress needs to be measured both in terms of risk and impact. Regarding risk, it is crucial to integrate in current metrics of financial risk sources of risk that are often not considered, such as climate, physical and transition risk. Regarding impact, we need to assess the contribution of project portfolios to climate action. This session examines current approaches and their applications as well as future directions.
Moderator: Stefano Battiston (Professor, UZH)
Speakers: Renat Heuberger (CEO, South Pole), David Uzsoki (Sustainable Finance Specialist – Infrastructure Finance Program, International Institute for Sustainable Development), Irene Monasterolo (Professor, Vienna Univ. of Econ. & Business), Veronika Stolbova (PostDoc, UZH)
17:30-18:30 Research and Practice Session: Sustainable finance and Fintech [detailed session description]. The Fintech sector has the potential to increase the funding opportunities for innovative SMEs in the green sector, which the traditional banking sector is not prepared to invest in. This session discusses recent examples of successful applications of fintech in sustainability projects along with emerging issues that remain to be addressed regarding governance, confidentiality, and traceability.
Moderator: Veronica Garcia Heller (CEO, Bitlumens)
Speakers: Richard Olsen (CEO, Lykke), Nick Beglinger (CEO, Cleantech21), Claudio Tessone (Professor, UZH)
Thursday, 18th January
08:30-09:00 Welcome and introduction to the practitioner sessions. Stefano Battiston (Professor, UZH).
09:00-10:00 Practitioner Session: Pension Funds [detailed session description]. Pension funds are considered to be among the financial actors with a long-term time horizon for their investments. They are therefore increasingly concerned with climate-related risks, in particular with transition risk. This session discusses a recent voluntary initiative among Swiss pension funds to evaluate the alignment of portfolios to the 2 degrees target, in order to understand to what extent this kind of exercises could be replicated to other countries and sectors.
Moderator: Carlo Jaeger (Professor, Global Climate Forum)
Speakers: Silvia Ruprecht-Martignoli (Officer, Swiss Ministry of Environment), Stanislas Dupré (Global Director, 2 Degrees Investing Initiative), Amandine Favier (Senior Advisor Sustainable Finance, WWF), Patrick Uelfeti (Portfolio Manager, Publica)
10:00- 10:30 Coffee Break
10:30-11:30 Practitioner Session: Development Banks [ detailed session description]. The session will focus on climate risk and impact metrics and methods to assess the exposure of development banks’ portfolios to climate risk, as well as their contribution to climate action (e.g. Sustainable Development Goals). By building on the experience of major development banks, we will discuss their progress towards better climate risk and impact disclosure, as well as the challenges and opportunities that they experience, both at the governance and project level. Finally, we will discuss what role could the academia play to support development banks in this process, by identifying specific areas of collaboration where synergies could be successfully exploited.
Moderator: Irene Monasterolo (Professor, Vienna Univ. of Econ. & Business)
Speakers: Barbara Buchner (Executive Director, Climate Finance Program - CPI), Gael Giraud (Chief Economist, French Agency of Development), Monica Scatasta (Head of Environment, Climate and Social Policy, European Investment Bank)
11:30-12:30 Practitioner Session: Central Banks [detailed session description]. Central banks play a critical role in the development of sustainable financial markets. In that context, leading central banks have started exploring the interlinkages between monetary policy, financial regulation as well as their supervisory functions and climate change. This session examines where they stand and discusses next steps for this agenda.
Moderator: Mireille J. Martini (Research and Advocacy Officer, Finance Watch)
Speakers: Alexander Barkawi (Director, Council on Economic Policies), Guido Schotten (Economic Policy Advisor, De Nederlandsche Bank), José Manuel Marques (Head of the International Financial Markets Division, Banco de España)
12:30 – 14:00 Lunch Break and Sustainable Business Corner (in Lichthof)
14:00-15:00 Practitioner Session: Asset Managers [detailed session description].
An increasing number of asset managers have started to be vocal in demanding better disclosure of climate risk and decarbonisation from companies in which they hold shares, specifically in the fossil fuel and utilities sector. Others have moved substantial portions of their funds towards climate friendly investments as part of a broader ESG strategy. Such decisions entail profound organisational processes and changes. This session discusses the incentives for investors to demand better disclosure of climate related financial information and potential barriers in terms of metrics and processes. Climate disclosure will be discussed in the context of the necessary capital allocation to meet the international climate goal and the Sustainable Development Goals.
Moderator: Maximilian Horster (Managing Director, ISS-Ethix Climate Solutions)
Speakers: Antoinette Hunziker-Ebneter (CEO, Forma Futura), Rachel Whittaker (Sustainable Investment Strategist, UBS), Maximilian Martin (Global Head of Philanthropy, Lombard Odier), Roland Hengerer (Sustainability Investing Analyst, Robeco SAM), Alexander El Alaoui (Analyst Portfolio Management, Salm-Salm)
15:00-16:20 Policy and Research Session: EU-funded research and policy insights for sustainable finance [detailed session description]. EU funded research has been playing and will play a crucial role in the development of the sustainable finance sector. The main insights for practitioners in sustainable finance stemming from successful EU funded research projects are presented by their coordinators. Projects represented include: SIMPOL, DOLFINS, ISIGROWTH, GREENWIN, COEGSS, SEIMETRICS and others. Further a proposal for a future FET Flagship on sustainability and the future of society in the EU will be presented.
Moderator: Stefano Battiston (Professor, UZH)
Speakers: Filippo Addarii (CEO, Plus Value), Stan Dupre (Global Director, 2 Degrees Investing Initiative), Guido Caldarelli (Professor, IMT Lucca), Giovanni Dosi (Professor, Sant'Anna School of Advanced Studies), Carlo Jaeger (Professor, Global Climate Forum)
16:20 – 17:00 Coffee Break (in Lichthof)
17:00-19:00 Key Panel Session [detailed session description]. This session hosts world-renowned experts from academia, policy making institutions, the financial industry and development finance institutions to discuss how to narrow the gap between the capital allocation of private and public finance and sustainability. In particular, the session will discuss what the expectations from research and from policy are. The panel will also involve the broader audience in a discussion on the solutions ahead on how to ensure financial stability while promoting sustainable finance.
Moderator: Stefano Battiston (Professor, UZH)
Speakers: Prof. Joseph Stiglitz (Columbia University), Mr. Graeme Maxton (Secretary General of Club of Rome), Ms. Mafalda Duarte (Head of Climate Investment Funds), Mr. Christopher Steane (Deputy Head Wholesale Banking of ING), Mr. Urban Angehrn (Group Chief Investment Officer and Member of the Executive Committee at Zurich Insurance Group).
Friday, 19th January
09:00-10:10 Research Session: Endogenous financial networks and the price of systemic risk [detailed session description]. While the existence of a tradeoff between risk diversification and contagion has become evident to most scholars since the events of 2008, the underlying mathematical and economic mechanisms have been clarified only recently. This session examines the relations between the architecture of financial networks and their ability to amplify shocks both in a static and in an endogenous link formation setting. The results are relevant to for pricing the impact of systemic effects on the obligation of financial counterparties as well as the contribution of investors to financial stability.
Moderator: Christoffer Kok (Deputy Head, Directorate General Macroprudential Policy and Financial Stability, ECB)
Speakers: Mauro Napoletano (Professor, SciencesPo), Marco D’Errico (European Systemic Risk Board), Paolo Barucca (PostDoc, UZH), Alan Roncoroni (PhD Student, UZH)
10:10-11:10 Research Session: Networks of financial derivatives and systemic risk [detailed session description]. The session examines the relation between interconnectedness and systemic risk in the context of financial derivative contracts. Indeed, interconnectedness is particularly interesting and poorly understood in the context of derivative contracts. On the one hand, amplification of shocks can be larger than in the normal case, because of non-linearity in the payoffs of derivative contracts. On the other hand, basic properties such as clearing of the market may cease to hold, as found in the context of network of CDS contracts.
Moderator: Tuomas Peltonen (Deputy Head, European Systemic Risk Board)
Speakers: Stefan Avdjiev (Senior Economist, Bank for International Settlements), Inaki Aldasoro (Economist, Bank for International Settlements), Steffen Schuldenzucker (PhD Student, UZH), Olga Briukhova (PhD Student, UZH)
11:10-11:40 Coffee break
11:40-13:00 Research Session: Estimating systemic risk in financial networks [detailed session description]. This session further examines the impact on the estimation of systemic risk from missing information on linkages among financial institutions and between financial institutions and common assets.
Moderator: Guido Caldarelli (Professor, IMT Lucca)
Speakers: Boris Podobnik (Professor, Zagreb School of Econ. & Manag.), Giulio Cimini (Professor, IMT Lucca), Fabio Saracco (Professor, IMT Lucca), Fabio Vanni (PostDoc, Sant'Anna School of Advanced Studies), Tiziano Squartini (Professor, IMT Lucca)
13:00-14:00 Lunch Break
14:00-15:00 Research and Practice Session: Central Banks: Network Models for Financial Stability [detailed session description]. While most central banks’ mandate is focused on price stability, a major legacy from the Great Recession has been that price stability requires to look at financial stability from a systemic point of view and this in turn requires to look at the financial system as a multi-level network. This session discusses how the lessons from financial network models are applied in the practice to financial stability and macroprudential policies and what challenges regulators have to address in terms of both data and concepts.
Moderator: Stefano Battiston (Professor, UZH)
Speakers: Christoffer Kok (Deputy Head, Directorate General Macroprudential Policy and Financial Stability, ECB), Tuomas Peltonen (Deputy Head, European Systemic Risk Board), Joseph Stiglitz (Professor, Columbia University)
15:00-15:30 Short Break
15:30-16:30 Research and Practice Session: Sustainable Business and Finance [detailed session description]. This session reflects the debate around sustainable finance from the demand side. What are the needs of citizens and sustainable enterpreneurs and how are these needs connected to the offerings of financial institutions today? In the transition towards more ecological, resilient and decentralized structures, new approaches of sustainable business like cooperatives and social entrepreneurs emerge. Are banks today prepared to respond to the needs of a changing real economy? Risk, return or values: What are the drivers for the debate around green and sustainable finance today? What would be needed for banks and clients to find a common language?
Moderator: Katharina Serafimova (Social Entrepreneur)
Speakers: Martin Rohner (CEO, Alternative Bank Schweiz), Maria Lamas (Managing Director, Julius Bär), Heiko Specking (Founder, specking+partners gmbh)
16:30-17:00 Coffee Break
17:00-18:00 Conclusive Panel Session [detailed session description]
This session discusses the lessons learnt for both researchers and practitioners from the three-day conference and the future directions for the coming year.
Moderators: Stefano Battiston (Professor, UZH) and Marc Chesney (Professor, UZH)
Speakers: Open floor discussion.