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.

Interview with Stefano Battiston