Second FINEXUS Conference on Financial Networks and Sustainability
Finance Between Stability and Sustainability
Date & Venue: 17-19 January 2018, University of Zurich, Aula KOL-G-201, Zurich, Switzerland
Aim and scope. Addressing the current misalignment of financial capital towards sustainability and financial stability objectives requires fundamental progress, not only on analytical methods, but also on the design of financial instruments and on governance processes, simultaneously. This year’s edition of the FINEXUS Conference represents the first venue where experts discuss how to tackle this challenge.
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.
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, a financial system aligned with sustainability needs 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.
Preliminary agenda for the practitioner sessions (Thursday 18 and Friday 19 January, 2018) – More updates soon. The conference is comprised of five practitioner panel sessions on Thursday 18 and Friday 19 focusing on the following industry and stakeholder groups: asset managers (session 1), pension funds (session 2), development banks (session 3), central banks (session 4), fintechs (session 5).
Practitioner Session 1: Asset Managers
Very recently some key players in the asset manager sector have started to be vocal in demanding better disclosure of climate risk and decarbonization plans from the fossil fuel companies in which they hold shares. Others have openly moved substantial portions of their funds towards ESG investments. However, these decisions entail profound organizational processes that should not be underestimated. This session discusses the incentives for investors to demand better disclosure of climate related financial information and the current barriers in terms of metrics and processes to narrow the gap between capital allocation and SDGs.
Practitioner Session 2: Pension Funds.
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 exported to other countries and sectors.
Practitioner Session 3: Development Banks
Green bonds, initially introduced by the European Investment Bank in 2007, are becoming an increasingly mainstream instrument of investment, yet their market share is still below its potential. The session discusses the role currently played by development banks in the success of green bonds and other sustainable finance instruments, as well as the current challenges in evaluating portfolios’ impact on climate action.
Practitioner Session 4: Central Banks
While most central banks’ mandate is focused on price stability, a major legacy from the Great Recession has been that price stability requires financial stability in a systemic sense, and that this in turn requires to understand and manage financial interconnectedness. Moreover, financial stability is also a key objective of sustainable finance. Yet, the role of monetary policies in fostering allocation of capital towards sustainable investment is the subject of live debates. This session discusses how the lessons from financial network models are applied to financial stability and macroprudential policies as well as the possible avenues for green monetary policies in the future.
General Public Session:
This session hosts four world-renowned experts from academia, policy making institutions and the financial industry to discuss the current barriers towards sustainable finance, as identified in the practitioner sessions. 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.
Practitioner Session 5: Fintechs
Fintechs have 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 in the field along with emerging issues that remain to be addressed regarding governance, confidentiality, traceability, etc.
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).