Taming the financial system

Complex systems science for a sustainable future

How Stefano Battiston and his team are contributing to a global financial system that serves society, channels funds towards a green economy and places citizens at the centre of policy process in finance. 

Stefano Battiston is a rare phenomenon in the world of science. He started in physics, went into neuroscience for a while, returned to physics and complex systems, and eventually stepped into the field of social and economic topics, focusing on financial risks. “What motivated me was that during my studies I realised that whereas the physical reality and particularly the brain are not going to change in my lifetime, the economy is changing considerably. 

«Nowadays the financial industry
has a disproportionate influence
on the policy process.»

That was at the time of the dotcom crisis when we saw a number of changes in the way society was organized and business was conducted. It was exciting, so I decided to pursue that route,” says Battiston to explain his unusual career path. 

Such an interdisciplinary career is usually not rewarded in today’s academia. Nevertheless Stefano Battiston has been highly successful, both as a scientist and as a project manager and fundraiser. Two years ago he was appointed Swiss National Science Foundation professor at the Department of Finance and Banking at the University of Zurich, where he now leads a team of eight researchers. He manages to finance his team mainly by funds from the European Union, participating in six Horizon 2020 projects from all three funding pillars (Excellent Science, Industrial Leadership and Societal Challenges) – a remarkable success. 

Three fields of research on crucial topics

Stefano Battiston and his group focus on three research fields which cover the most fundamental future aspects of economic and policy issues. The first deals with systemic risks within the global financial system. The second covers environmental sustainability, mainly the impact of climate change on the economy. And the third concentrates on the participation of the civic population in the policy process. All three fields are highly connected. For instance, the costs of pollution such as CO2 emissions are currently not included in the prices of products and services. But it is likely that this will change soon, which will lead to a revaluation of a huge number of assets and subsequently will have a major impact on the global financial system. 

So on the one hand, Stefano Battiston and his research team study how the global financial system works, how financial institutions are interconnected, how contagion spreads through the system and how crises develop. Based on these findings, the researchers develop recommendations for improving the stability of the financial system and for channelling funds into a sustainable low-carbon economy. They look at how incentives or new financial instruments should be designed and regulations be adapted in order to foster the transition to a green economy. On the other hand, they deal with the very practical issue of how these findings could be implemented in politics. 

«It would be safer to have sectors
that have a stronger identity –
not everybody doing everything.»

“Today we are more competent at reducing systemic risk by means of a number of counter-measures. We also know how to make the move to a lower carbon economy. Most of the technology is already in place. But we’re still not able to move there politically. So now the question is: How can we improve the situation by bringing citizens back into the political process. We need to remove the obstacles that prevent us tackling both the systemic risk and the transition to a low-carbon economy,” Stefano Battiston explains. And he adds, “Nowadays the financial industry has a disproportionate influence on the policy process with respect to other stakeholders. We want to improve the situation by getting society back into the driver‘s seat.” 

Making the financial system serve society better and making the economy greener, using scientific evidence – this is the goal of DOLFINS (Distributed Global Financial Systems for Society), the Horizon 2020 project Stefano Battiston is coordinating. And this is where complex systems sciences comes in.

Dealing with complex systems 

Stefano Battiston’s interest in complex systems science stems from his time as a physicist; he later applied this to understanding our financial system, a highly complex network linking players in a web of liabilities, expectations and interactions. Such systems are characterized by numerous feedbacks and loops, creating a huge and often unforeseeable dynamic. So it is difficult to predict precisely the behaviour of complex systems. But complexity scientists can analyse the interrelations of the players and the self-enforcing mechanisms, and from this they can draw up recommendations on how to minimize the risk of a crisis. Battiston mentions just one of the lessons drawn from analysing the complex financial system: “You certainly don’t want to have a system that is fully and strongly interdependent – this is a recipe for disaster. So we would suggest more diverse business models. But today we are moving towards a global model in which each institution is doing almost the same thing: banks are also offering insurance, pension funds are lending, and everybody is involved in derivatives. But if everybody has the same type of portfolio, when there is a crisis everybody will be hit in the same way. It’s safer to have sectors that have a stronger identity; insurance doing insurance, banks doing banking, pension funds doing pension funds.” 

Complexity science methods of course play a key role in the DOLFINS project. But over and above that, Stefano Battiston sees DOLFINS as a junction where his three main research fields intersect and his interests in basic research and application meet. 

«You certainly don’t want a system
that is fully interdependent
as this is a recipe for disaster.»

By working both on the DOLFINS project and the other Horizon 2020 projects, Battiston is forming a well-matched, highly competent research network system, which will be instrumental in achieving the ambitious goals set by DOLFINS. So in every sense, Stefano Battiston is an expert and a master of complex network systems.

Pack your vision in a simple narrative!

How he managed to become a partner in six Horizon 2020 projects. – Five questions for Stefano Battiston, Professor of Banking at the University of Zurich.

Professor Battiston, you are currently benefiting from six Horizon 2020 projects and coordinating the ambitious DOLFINS project. This is a remarkable success. Do you follow a specific strategy regarding EU grants?

I realized very early that in order to build a group I had to rely on research grants. I’ve been applying for grants ever since I was a doctoral student in Paris. At that time my PhD programme was partly financed by a consulting company. But when the dotcom bubble led to an economic crisis, the first thing companies did was to cut research, which put my doctorate at risk. Luckily a few months earlier I had been involved in writing a proposal. Out of this proposal the first European project on complex networks emerged and was eventually granted. It saved both my PhD programme and my research career. So since then, writing proposals is a normal part of my activities, and during the course of time I have gained experience. 

The strategy is first of all to have a clear vision of what you want to carry out and how to fit different things into one simple unifying framework. Then you have to develop good relations and strong scientific collaborations with colleagues who are also interested in research grants. I don’t think you can plan the path in advance exactly. But in my experience, projects which have a clear vision, are well-written and well-thought through, are rewarded. So if you want to obtain research grants, this is where you need to invest your time and energy. The success rate is very low. So you have to understand that this is an investment which will only once in a while have a return. But that return is very high.

So what is your approach when you apply for EU grants and projects? Do you have a specific recipe?

I don’t think there is a replicable recipe. But what’s important is getting involved even in small tasks within a European project early on in academic life. In this way you come to understand what makes sense in a project – what is valued, what is not valued and how synergies and collaborations work between partners in a European project. This is very important and it’s a long process. But once you have grown up in this kind of environment you’re much more likely to be invited to an existing consortia and eventually at some point even be proposed as a coordinator. So I would say the recipe is first to get involved in one way or another, go to the information days linked to the calls and try to write proposals, for example. It’s a learning curve which takes some time. 

And how did you apply your experience to become partner of six Horizon 2020 projects?

Again, I would say the key is to come up with a strong vision. It has to be something really new, something that you strongly believe is an important scientific challenge with an impact for society. It has to be something you feel comfortable with and convinced of. That’s the best recipe. Of course there’s the technical aspect too, how to write the proposal in a way that complies with the regulations. But that’s not enough. You have to pack your vision in a simple narrative. It should be something you are able to tell in simple terms in a few sentences. 

And you need a good network as well?

The network of scientific collaboration has to favour excellence. So you need excellent collaborators who establish and maintain relations with partners across Europe. This is important. They also should be partners you can work with. Sometimes within the best universities and the best research groups there might be someone you are not able to get along with. So you have to pay attention to all three factors: excellence, cooperation and the ability of people to work with you as a team. Then you might be successful.

What are the benefits of EU grants and projects for you and your research?

We benefit from European grants in several ways. One is certainly that it forces you to take a more general perspective; it exposes you to what other people are working on and what they think. This is important in terms of research and societal impact. And it compels you to be even more interdisciplinary. That means talking to computer scientists as well as to economists and trying to be the bridge between them. We’re combining different types of knowledge to produce something new. I think this is a fascinating process and the root of innovation.

Interview with Stefano Battiston
Stefano Battiston
Horizon 2020 – funded projects

Stefano Battiston is contributing to the following EU funded projects and programmes:

DOLFINS – Distributed Global Financial Systems for Society

Participants: A total of 14 institutions including European universities and research institutes
Coordinator: University of Zurich, Switzerland
Pillar: Excellent Science – Future and emerging technologies (FET)


SEI Metrics – Developing Sustainable Energy Investment (SEI) metrics, benchmarks,
and assessment tools for the financial sector

Participants: A total of 9 institutions including European universities, finance institutions and NGOs
Coordinator: Association 2 Investing Initiative, France
Pillar: Societal Challenges – Secure, clean and efficient energy


ISIGrowth – Innovation-fuelled, Sustainable, Inclusive Growth 

Participants: A total of 7 institutions including universities and research institutes from Europe and the USA
Coordinator: Scuola Superiore di Studi Universitari e di Perfezionamento Sant‘Anna, Italy
Pillar: Societal Challenges – Europe in a changing world – Inclusive, innovative and reflective societies


ShakerMaker – Harnessing the power of Digital Social Platforms to shake up makers and manufacturing
entrepreneurs towards a European Open Manufacturing ecosystem 

Participants: A total of 12 institutions including universities, research institutes, NGOs and SMEs from Europe
Coordinator: The Young Foundation LBG, United Kingdom
Pillar: Industrial Leadership – Information and communication technologies


BigDataFinance – Training for Big Data in Financial Research and Risk Management
Doctoral training of 13 researchers at the crossroads of finance and big data. Stefano Battiston‘s Chair hosts 2 of the 13 trainees. 

Coordinator: Tampere University of Technology, Finland
Pillar: Excellent Science – Marie Skłodowska-Curie actions


FINREALNETS – Financial and Real Sector Networks in Europe

One postdoctoral research fellow, hosted by Stefano Battiston‘s Chair.
Pillar: Excellent Science – Marie Skłodowska-Curie actions