Source: University of Auckland (UoA)
Climate-related news can influence how much people are willing to pay for wine, according to a study by University of Auckland finance academic Dr Gertjan Verdickt.
“I ask the question, if you see more climate-related news, are you willing to pay more or less for foreign wine? And my analysis shows it’s less. The economic magnitude is meaningful with a one-standard-deviation increase in climate attention is associated with a 3.58 percent drop in the price of a bottle.”
In everyday terms, that would mean that when climate news spikes, the price a person is willing to pay for a US$480 bottle would fall by about US$17.
The decrease in the amount investors are willing to pay for a bottle of wine in relation to their exposure to climate-related news, says Verdickt, could mean a significant cost for fund managers and wine collectors.
He calls this phenomenon ‘climate extrapolation’ – when investors project climate news from their local environment onto an asset’s valuation, even if that asset is tied to a different geography.
“I compare the price of these wines abroad relative to their price in France; I used France as my benchmark. In theory, the ratio should be one, meaning a bottle costs the same abroad as it does in France. When that ratio changes, I look to understand why.”
A growing body of research shows that personal experiences influence financial decision-making, and climate news and events are no exception, says Verdickt. Events like unusually hot weather or poor air quality can alter how people invest and spend.
One theory suggests that heightened awareness of climate risks prompts investors to seek out assets perceived as resilient, thereby driving up their value. Another view is that climate awareness makes people more cautious, highlighting the vulnerabilities of certain assets and reducing demand.
The decrease in what people are willing to pay for a bottle of French wine is amplified when the effects of climate change are most palpable, during the summer months, says Verdickt, who ruled out other explanations, including natural disasters, investor mood, general uncertainty and differences in bottle condition.
To test how climate news affects what buyers are willing to pay for the same bottle of wine in different countries, he employed a dataset of over 68,000 Bordeaux Premier Cru wine auction prices from 222 houses in 18 countries, including Australia and New Zealand. Overall, the study examined more than 70,000 auction transactions.
“I collected a large dataset from auction houses that sell wines from five Bordeaux Premier Cru producers in France. These are considered the best in the world. Because of their reputation, they are highly sought after, and the average bottle costs around US$480,” says Verdickt.
“This is not the kind of wine you casually open on a weeknight, at least … I don’t. At the same time, these wines are frequently traded, which makes them a good product for analysis.”
The Bordeaux Premier Cru wines include five châteaus: Haut-Brion, Lafite Rothschild, Latour, Margaux, and Mouton Rothschild. These five producers constitute the most liquid and globally traded segment of the wine market, forming the entire benchmark’ Liv-Ex Fine Wine index’.
Furthermore, there have been investment funds dedicated to investing in these five producers, ensuring that these wines, while still a consumption good, are also considered ‘investment-grade’ wines.
Verdickt’s dataset also included climate change news for each of the 18 countries in the study. To understand climate perceptions in different countries, he used a ‘Climate Attention Index’. This index breaks down climate-related attention across multiple countries by analysing over 23 million tweets from major (national) newspapers. Verdickt compared the newspaper tweets to authoritative climate change texts to generate a daily index with country-specific scores detailing levels of climate news.
The key takeaway from the study, that climate experiences can drive investor behaviour, is consistent with previous research showing that such experiences can also influence corporate voting and other financial decisions, according to Verdickt.