Climate news influences how much people will pay for wine, study suggests – hospitality

Climate-related news can influence how much people are willing to pay for wine, according to new research.

University of Auckland Finance Academic Dr Gertjan Verdickt asked the question; if you see more climate-related news, are you willing to pay more or less for foreign wine?

His 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,” says Verdickt.

What that means is when climate news spikes, the price a person is willing to pay for a $480 USD bottle falls by about $17 USD.

Verdickt says the decrease in the amount investors are willing to pay for a bottle of wine could mean a significant cost for fund managers and wine collectors.

He labels it “climate extrapolation”. It means investors project climate news from their local environment onto an asset’s valuation, even if that asset is tied to a different place.

Using France as a benchmark, Verdickt compared the price of wines abroad to where they come from.

“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,” he says.

Research shows that personal experiences influence financial decision-making, and climate news and events are no exception, he adds.

And, 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, which therefore drives up their value. Another view is that climate awareness makes people more cautious, highlighting the vulnerabilities of certain assets and reducing demand.
 
To test how climate news affects what buyers are willing to pay for the same bottle of wine in different countries, Verdickt used a dataset of over 68,000 Bordeaux Premier Cru wine auction prices from 222 houses in 18 countries, including Australia and New Zealand. This study examined more than 70,000 auction transactions.  

The Bordeaux Premier Cru wines include five châteaus: Haut-Brion, Lafite Rothschild, Latour, Margaux, and Mouton Rothschild.

“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.” 

Using a “Climate Attention Index” he broke down climate-related attention across multiple countries. 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. 

Photography by Pexels.