CHRISTOS CABOLIS | Chief Economist, IMD World Competitiveness Center

MAUDE LAVANCHY | Research Fellow, IMD

KARL SCHMEDDERS | Professor of Finance, IMD


The term ESG – short for environmental, social, and governance – is routinely used to capture organizations’ efforts to be more climate friendly and socially inclusive and to employ sound governance practices and processes. Although ESG criteria are well-meaning, the term lumps together concepts that are profoundly different on at least three dimensions: (1) the excludability of the benefits of an action, (2) the temporal gap between investment and the realization of its returns, and (3) the uncertainty surrounding any given action’s outcome. In addition to these differences, E frequently goes head-to-head with S (both within and across countries). We propose a path forward, on the way investigating the solutions that businesses can explore in order to build a more sustainable future.



CHRISTINE CHOW | Head of Stewardship, HSBC Asset Management
NICHOLAS DOWELL | Global Equity Portfolio Manager, HSBC Asset Management

The title of the article references the story of the boiling frog, a metaphor that warns people of the danger of not noticing gradual changes and suffering consequences for it. In both our work and personal life, artificial intelligence (AI) and augmented reality (AR) surveillance is becoming more common at a gradual pace, and less obvious in its intrusive nature due to convenient wearables and lifestyle choices. 

Without consent, surveillance is a violation of our basic human right to liberty and the right to freedom of opinion and expression. In this article, we explore how to use AI+VR productively, with a neurodiverse and ability inclusive mindset, to benefit people and businesses. 

Similar to surveillance in the workplace, we advocate that gamers should be informed of the type of surveillance that has been put in place to track them and potentially influencing their behavior. They should have full access to their diagnostics if eye tracking or other motion detection technologies are used in assessing their “health status”, and such applications should be based on free, prior, and informed consent (FPIC).



ELENA FLOR | Group Head of ESG and Sustainability, Intesa Sanpaolo

In an increasingly complex environment, where sustainability has become a global trend and increasing attention is being paid to ESG (environmental, social, and governance) issues by a myriad of stakeholders, including the regulators, Intesa Sanpaolo recognizes that its own and its corporate clients’ innovations and sustainable actions can contribute to the transition to a low-carbon, eco-sustainable, and inclusive economy. Intesa Sanpaolo is one of the top banking groups in Europe with significant ESG commitments, with a world-class positioning in social impact and strong focus on climate.

The group’s focus on sustainability results in a wide-ranging and comprehensive program of initiatives within the new 2022-2025 Business Plan, having ESG as one of its four pillars. The ESG commitment of the Plan is programmed to be rolled out through six stages. In this article, Elena Flor, Group Head of ESG and Sustainability at Intesa Sanpaolo, shares her insights on the 2022-2025 Business Plan.


PAUL DONOVAN | Chief Economist, UBS Global Wealth Management

The structural changes of the fourth industrial revolution are considerable. In the financial services sector there is,  inevitably, a lot of focus on the technological changes and their impact on financial markets. However, finance has a long history of adapting to technological innovation. Instead, it is consequences of social change that are likely to present the biggest challenge for finance over the next twenty years.



ALEXANDRE VANDEPUT | Principal Consultant, Capco

The European Union (E.U.) wants to position itself as a world leader in digital innovation in the financial services industry. Subsequent to the digitalization of the provision of financial services to European consumers and businesses, new kinds of digital risks have emerged. 

To reach that set objective, the E.U. must make sure those key risks are properly controlled. DORA, which stands for Digital Operational Resilience Act, is the answer from the E.U. to the increasing use of ICT systems and third parties for financial institutions’ critical operations. 

This paper explores the key actions that financial institutions will have to undertake to comply with DORA guidelines. The emerging risks will require mitigations such as an appropriate ICT risk management framework, a robust incident management process including classification and reporting, a digital operational resilience testing program, as well as an end-to-end third-party management control framework.




MARION AMIOT | Head of Climate Economics, S&P Global Ratings
SATYAM PANDAY | Chief Emerging Market Economist, S&P Global Ratings

Over the next decades, rising temperatures will be a bigger hurdle for emerging markets and developing economies than for advanced economies. Our analysis of data from 190 countries shows that a one-time, 1-degree Celsius annual average temperature increase is more damaging for emerging markets and developing economies (EMDEs) than advanced economies (AEs). 

We find that seven years after such a rise, gross domestic product per capita is 0.6-0.7 percentage points lower in countries with current annual temperatures averaging 22°C-24°C (mainly EMDEs) than in those averaging 15°C (AEs) – all other things being equal. Further, we find permanent income losses arising through lower productivity and investment, with the agricultural sector taking a long-term hit. Where annual temperatures average 24°C, GDP per capita of countries least ready to cope with climate change remains 2 percentage points lower, while countries most ready see no sustained losses, seven years after the 1°C temperature shock. 

Economies have adapted somewhat to one-off temperature increases over the past decades, with the sensitivity of GDP to temperature shocks decreasing by about 30 percent over the past 20 years. Supportive macro policy responses have also helped economies recover from climate related shocks, restrictive monetary policy seems to amplify the shock, whereas low real interest rates are associated with little scarring.




MARTIJN DEKKER | Visiting Professor of Information Security, University of Amsterdam, Global Chief Information Security Officer, ABN AMRO Bank N.V.

Companies and organizations need, more than ever, to control their digitalization efforts. This is due to the increasing importance of digitalization to their business models and due to the increased IT spend levels. In the current threat landscape, digitalization can also lead to significant operational risk events. 

Managing these events requires an approach that incorporates the growing uncertainty in the probability and impact of these events. This article highlights how corporate and information security executives can improve the way they communicate with each other in order to manage these events.



DANIEL W. WOODS | Lecturer in Cyber Security, School of Informatics, University of Edinburgh

Personal identity theft occurs when a criminal uses stolen personal identifiers to manipulate third parties into taking actions under the false belief they are communicating with the individual whose identity has been stolen. A typical example is the criminal taking a loan out under the stolen identity. 

A market for personal identity insurance has emerged to mitigate the associated harms. We extract 34 personal identity insurance products that were uniquely filed with regulators in the U.S. We conduct a content analysis on the policy wordings and actuarial tables. Analyzing the policy wordings reveals that personal identity theft causes a number of costs in terms of monitoring credit records, lost income and travel expenses, attorney fees, and even mental health counseling. 

Our analysis shows there are few exclusions related to moral hazard. This suggests identity theft is largely outside the control of individuals. We extract actuarial calculations, which reveal financial impacts ranging from a few hundred to a few thousand dollars. Finally, insurers provide support services that are believed to reduce out of pocket expenses by over 90 percent.


GUILLAUME CAMPAGNE | Executive Director and Financial Risk Practice Lead, Capco
LEA RIZK | Consultant, Capco

In May 2022, the European Banking Authority (EBA) published a discussion paper with the aim of evaluating the appropriateness of the current prudential framework to accurately assess the rising risks resulting from environmental issues. A key question the discussion paper seeks to address is: does the current Pillar 1 framework adequately cover new risks, such as environmental risk, or should they be subjected to a new dedicated treatment? 

In this article, we present the key concepts of environmental risk and examine the EBA’s analysis of the interaction between environmental risks and the traditional prudential risk categories – such as credit, market, operational, and concentration risks – in order to determine whether the tools used for the latter could be modified to manage the former. We further outline the key actions firms need to take to prepare themselves for a potentially binding Pillar 1 treatment, while awaiting further regulatory guidance.


JONATHAN GALE | Chief Underwriting Officer, Reinsurance, AXA XL

(Re)insuring the risks related to a changing climate is a challenge and an opportunity – new risks are being created and existing risks are being amplified. As businesses seek to understand, and play an active role in mitigating, the effects of climate change they often focus on the physical risks associated with the changing environment. However, a key part of the business risk can come from the substantive change in consumer behavior, technological advances, and the change in operations needed of almost every company globally – the “transition risk”. As the world works to decouple 
the link between the continuous need for economic growth and increasing emissions, we consider the pathway to manage that change.


IRIS H-Y CHIU | Professor of Corporate Law and Financial Regulation, University College London

An innovative form of governance for sustainable investment products has been introduced in the E.U. in order to address the fears of investment mis-selling, as well as to actively steer sustainable investment allocations towards defined causes of sustainability, in particular, environmental sustainability. 

The E.U.’s sustainable regulation framework is discussed in this paper as an “authoritative” form of governance without being authoritarian. Investment allocation is a matter of market choice, but regulation intends to achieve clarity in relation to sustainable costs and achievements in order to influence investor choice. The U.S. and U.K. are also developing reforms in sustainable finance regulation, but are more narrowly focused on anti-mis-selling and investor protection.

This paper discusses their approaches as fundamentally market-based, in contrast to the E.U.’s, as the industry and investors remain in control of defining sustainability goals, if any, in investment. The paper critically discusses the prospects of market mobilization under these different approaches and what may entail from their regulatory competition.


JO ANN S. BAREFOOT | CEO, Alliance for Innovative Regulation

In a much-covered speech in Washington D.C. in the fall of 2022,2 Federal Board Vice Chair for Supervision Michael S. Barr drew parallels between the risks that accumulated before the 2008-2010 mortgage meltdown and the more recent explosion in financial innovation. Barr noted that innovation “supported by new technologies can disrupt traditional providers by spurring competition, creating products that better meet customer needs, and extending the reach of financial services and products to those typically underserved.” But to achieve those outcomes, he warned, “we need to manage the relevant risks.” 

At the tail end of the financial crisis, Barr was an official in the Obama administration’s Treasury Department, and a central figure in the drafting of the post-housing-crisis regulatory restructuring known as the Dodd-Frank Act. That law reshaped much of how U.S. financial institutions are supervised and was mirrored by other nations that enacted their own reforms. The changes aimed to allow regulators to detect colossal risks before it was too late to prevent a future crisis of similar proportions. 

“We have seen through history that excitement over innovative financial products can lead to a pace of adoption that overwhelms our ability to assess and manage underlying vulnerabilities,” Barr said in October 2022. “As we saw in the lead up to the global financial crisis, innovative financial products can mask emerging risks, resulting in significant harms to businesses and households and ultimately undermining financial stability.” 

Unfortunately, the early-defense systems established by the U.S. and other countries were meant for the financial system of 2010. Nearly thirteen years later, financial innovation precipitated by digital technologies such as artificial intelligence and the blockchain is leading to a continual transformation of how we move, manage and exchange money, making this equation starkly different from what regulators encountered in the financial crisis.


PAUL M. GILMOUR | Lecturer in Criminal Justice and Policing, University of Portsmouth

Beneficial ownership disclosure remains a contentious issue for government regulators, the financial sector, and business professionals. Corporate transparency campaigners and other advocates argue that the proper disclosure of beneficial ownership is crucial to maintaining a fair and strong global financial system. It enhances the transparency of tax affairs and other corporate dealings, and prevents illicit activities, such as money laundering and tax evasion. 

However, enhanced beneficial ownership transparency relies on an effective system involving accurate company disclosure of beneficial ownership, robust verification procedures, and ongoing monitoring. The process of identifying the real beneficial owner of company assets can also prove onerous and costly for those obligated to carry out proper customer due diligence under anti-money laundering rules. 

This paper provides an insight into the global efforts to enhance corporate transparency through the disclosure of beneficial ownership. It explores the role of company registers, examines the process of customer due diligence, and considers what the proper disclosure of beneficial ownership means for the regulated financial sector and the business community.

TEJ PATEL | Partner, Capco
MEHAK NAGPAL | Principal Consultant, Capco
The financial services industry continues to face a challenging regulatory environment, most notably within trade and transaction reporting requirements. In fact, given recent market developments, including the acquisition of a troubled European bank and failure of a U.S. commercial bank, firms may witness another wave of changes to further strengthen the resiliency of the global banking infrastructure and monitor potential market abuse. 

There are a number of key drivers behind regulatory reporting change programs, such as new and updated reporting rules, findings and fines from supervisory authorities, and internal initiatives to address operational inefficiencies. Given the increased focus on cost reduction and tight change budgets in the current environment, market participants should seek to adopt a strategic approach to regulatory reporting transformation with the aim of strengthening compliance while simultaneously reducing long-term costs. This includes adopting a hybrid operating model, establishing a mature data strategy, reducing manual processes by increasing automation, and leveraging third-party regtech products to deliver reporting solutions.



JEROEN BRINKHOFF | Senior Economist, De Nederlandsche Bank, The Netherlands
JUAN SOLÉ | Principal Economist, European Stability Mechanism (ESM)

European life insurance companies are important bond investors and had traditionally played a stabilizing role in financial markets by pursuing “buy-and-hold” investment strategies. However, since the onset of the ultra-low interest rates era in 2008, observers noted a decline in the credit quality of insurers’ bond portfolios. The commonly-held explanation for this deterioration is that low returns pushed insurers to take on more risk. 

Using data from 56 European life insurers from several countries, this paper examines whether the declining credit quality of insurers’ bond portfolios during the low interest rate period after 2008 was driven by investing in riskier assets or due to other factors. We argue that other factors – such as surging rating downgrades, bond revaluations, and regulatory changes – also played a key role. We estimate that rating changes, revaluations, and search for yield each account for about one-third of the total deterioration in credit quality. This result has important policy implications as it re-establishes the view that insurers’ investment behavior tends to be passive through the cycle, rather than risk-seeking.


EMANUEL VAN PRAAG | Professor of Financial Technology and Law, Erasmus School of Law, Erasmus University Rotterdam, and Attorney-at-Law, Kennedy Van der Laan
EUGERTA MUÇI | PhD Candidate – Open Finance, Erasmus School of Law, Erasmus University Rotterdam

Open Finance is a new development in the financial services industry that entails the sharing, access, and reuse of customer (business and consumer) data with customer agreement across, and in order to provide, a wide range of financial services. This article explains a number of use cases of “Open Finance” in order to understand its potential and then discusses some important aspects of this regime, which are still to be decided upon by the legislator. The advantages and disadvantages are explained in order to have a critical view of this development in the financial services industry. 
The article concludes with a number of recommendations for financial institutions.