2nd FINEXUS Conference on Financial Networks and Sustainability
Closing the Gaps Between Finance and Sustainability
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).
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)