Accounting For The Apocalypse
An Experiment On The Commodification of Climate Security
Master Thesis
MSc. Crisis and Security Management 2019 - 2020 Faculty of Governance and Global Affairs
Leiden University
Supervisor: Dr. Honorata Mazepus 2nd Reader: Dr. Jarosław Kantorowicz
63 pages, 20 851 words,
2 Foreword
The redaction of this master thesis, and to some extent, the entire Crisis and Security Management program was perturbed by the responses to the Covid-19 pandemic. However, and thanks to the efforts of a number of teachers, staff members, and, of course, students, the 2019–2020 cohort managed to see a curriculum evermore pertinent to its end in due form. This thesis is humbly dedicated to them. Special thanks go to Dr. Honorata Mazepus, for her trust in the choice of this subject, as well as her supervision and support. And to Célia, without whom this year would not have been possible.
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Table of Contents
Chapter 1: Introduction ... 4
Chapter 2: Body of Knowledge ... 7
2.1. Shifts in Security: Governance, Economic and Environmental ... 7
2.2. Risk Society: Management and Commodification ... 10
2.3. Empirical Studies on the Financial Account of Climate Risk Information ... 15
Chapter 3: Research Design and Methodology ... 20
3.1. Research Design ... 22
3.2. Selection of the Population and Data Collection ... 24
3.3. Operationalization and Scale Measurement ... 25
3.4. Limitations in Terms of Reliability and Validity ... 28
3.5. The Experiment ... 29
Chapter 4: Analysis and Results ... 35
Chapter 5: Findings and Discussion of Study ... 59
Chapter 6: Conclusion ... 65
Reference List ... 67
4 Chapter 1: Introduction
Up to $20 trillion of assets—23% of the world GDP in 2019—might be destroyed by climate change if the global rise of temperature is not maintained between 1.5 and 2° C1. As current
estimates place it between 3 and 5 °C2, central banks and industry leaders are forewarning of
the economic disaster to come if markets fail to account for these threats in the pricing of assets3.
Two explanations are commonly thrown around to explain the lag of investors on the issue: the bias towards short-term profits, and the lack of adequate information at their disposal. The first hypothesis is bound to see a correction, as the impact and costs of the climate crisis are already showing and growing. The second, however, relates to a seminal question in both economic theories and risk management: are agents actually integrating information of risk in their decisions? Following the efficient market hypothesis—public prices synthesize all available information on an asset—leaders in the financial world have been advocating for the creation and funding of organizations to provide investors with actionable databases of “climate readiness4.” These initiatives are perhaps inspired by their experience and convictions, but the
extent to which their underlying assumption—that given reliable information investors will price in climate risks and allow for its commodification—is a valid model for projection has been debated. Furthermore, a strict and empirical experimentation of its explanatory power remains to be provided.
This thesis suggests an approach to fill that gap and characterize the explanatory power of the perfect information assumption on the pricing of climate risks through the development, conduction and evaluation of an experimental research design. Controlled quantitative data from economic agents reacting to randomized scenarios is collected using an investment simulation to provide an empirical answer to our following research question:
Research Question: To what extent do economic agents account for information of climate
risks in their investment decisions?
1 Richard Partington, “Mark Carney Tells Global Banks They Cannot Ignore Climate Change Dangers,” The
Guardian, April 17, 2019, sec. Environment, https://www.theguardian.com/environment/2019/apr/17/mark-carney-tells-global-banks-they-cannot-ignore-climate-change-dangers.
2 Reuters, “Global Temperatures on Track for 3-5 Degree Rise by 2100: U.N.,” Reuters, November 29, 2018,
https://www.reuters.com/article/us-climate-change-un-idUSKCN1NY186.
3 Reuben Wong and Christopher Hill, “Introduction,” in National and European Foreign Policy: Towards
Europeanization (Routledge, 2012), 1–18.
4 Well-known examples include the Task Force on Climate-related Financial Disclosure, Carbon Disclosure
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Answering the former would contribute to the study of crisis and security management on three levels. First, it offers an opportunity to reconnect a number of its subfields. From environmental and economic security to risk management and their commodification in markets, the CSM study has blossomed into a pleiad of domains. These are often endorsed by columnists, but this academic field has a deeper value in that it maintains a structural integrity of epistemology between specialized subthemes. Illustrating this web of knowledge between climate security and financial risk management through a multidisciplinary approach underscores the advantages of the field. Second, the present research question leverages these transdisciplinary advantages offered by CSM to highlight its potential for the study of salient contemporary issues at the nexus of our predetermined disciplines. Indeed, and owing to the complexification of our modern societies5, one can expect future impactful crisis to emanate from the dark
corners and superpositions of the Venn diagram formed by the disciplines in which we classify knowledge6. Third, this research is beneficial to the study of CSM in its use of experimental
methods. Initially on the periphery of the social scientist toolbox, their use has seen a documented increase in all fields at the end of the century7. Despite the challenges posed by the
adaptation of social phenomena to the laboratory environment, this growth has been accompanied by clearer internal validity8.
This research also aims to benefit societal stakeholders on two distinct points. First, evaluation of the explanatory power of the perfect information hypothesis can be crucial to policymakers navigating how best to govern the necessary financial adaptation to face the climate crisis. This is, furthermore, heightened by the recent policy interest on the question at the European level9.
Second, any information of the market’s ability to adapt to these risks on a best scenario would also prove valuable to the wider debate on the political stance to adopt on the issue—i.e. regulatory intervention or laissez-faire focusing on information availability.
5 Ulrich Beck, Risk Society: Towards a New Modernity, Sage, 17, 1992.
6 This perspective and the following is owed to the formatting reading of Nassim Nicholas Taleb, Black Swan:
The Impact of the Highly Improbable, Random House Incorporated, 2007.
7 James Druckman et al., Cambridge Handbook of Experimental Political Science, 2010, 3,
http://groups.polisci.northwestern.edu/researchpool/Handbook.pdf.
8 Shane R. Thye, “Logical and Philosophical Foundations of Experimental Research in the Social Sciences,” in
Laboratory Experiments in the Social Sciences (Elsevier, 2014), 71, https://doi.org/10.1016/B978-0-12-404681-8.00003-0.
9 Or at least prior to the Covid-19 crisis. See Christine Lagarde, “Climate Change and the Financial Sector”
(Speech, COP 26 Private Finance Agenda, London, February 27, 2020),
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This thesis is structured as follows. Chapter two offers a comprehensive review of the academic literature on the different domains, approaches and concepts relevant to this study. Chapter three contains the development and argumentation for the methodology and hypothesis used to answer our research question. It is also there that the data selection and collection processes are laid out, with the operationalization of our variables and the construction of the experiment. Chapter four contains the characteristics of our sample, the results of the experiment, and their analysis. Chapter five will see the presentation of our findings and their discussion. Finally, chapter six will provide the conclusions of this study, as well as the discussion of its limitations.
7 Chapter 2: Body of Knowledge
The literature reviewed for this thesis is divided into three sections. The first section retraces the major shifts and debates in security governance as well as economic and environmental security. The second section offers a narrower definition of these issues through the notion of risks, their management, commodification and the form they take in regard to the climate and financial sector. The final section reviews the state of empirical research on the perception of climate risks in finance, the information process of economic agents and lastly on the extent to which the financial sector may account for climate risks.
2.1. Shifts in Security: Governance, Economic and Environmental
The end of the 20th century and the new millennium saw the discourse—and to a certain extent
the practice—of security evolve in two directions. Functionally, as it shifted towards more decentralized and heterarchical process and “deepened” in terms of referent—from the state to the individual—but also through a “widening” of its agenda—including subfields such as economic and environmental security10.
First then, the emergence of a security “governance” is reviewed. Security is a constructed notion, covering a variety of realities under a general consideration of urgency11. Therefore, it
should be no surprise that, as the world order changed with the end of the Cold War and the disappearance of a unifying threat, the dominant understanding of security evolved12. These
changes in the political and economic context in which states governed over security issues saw the rise of new actors engaging with and changing the meaning of security, from private security companies to non-governmental organizations. The processes through which security was produced acclimated to these newcomers and morphed into a structure of nodal governance through institutions in which States and non-State actors cooperated13. As such, it would be
misleading to interpret this evolution through the image of a state “roll back,” wherein governments saw their power reduced. Quite the opposite, for some this new governance of security saw the growth of their indirect policing power and reach, as financially independent
10 Barry Buzan and Lene Hansen, The Evolution of International Security Studies (Cambridge: Cambridge
University Press, 2009), 189, https://doi.org/10.1017/CBO9780511817762.
11 Lucia Zedner, “The Concept of Security: An Agenda for Comparative Analysis,” Legal Studies 23, no. 1
(March 2003): 153–76, https://doi.org/10.1111/j.1748-121X.2003.tb00209.x.
12 Elke Krahmann, “Conceptualizing Security Governance,” COOPERATION AND CONFLICT, 2003, 22. 13 Adam White, “The New Political Economy of Private Security,” Theoretical Criminology 16, no. 1 (February
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and mobilizable actors took upon themselves to find new answers to the security challenges they faced14. All the while states retained their defining “command and control operations” as
well as a symbolic and cultural distinction in the exercise of their power15. As a consequence
of these dynamics and the importance of symbolic, governance is perhaps best understood as “the management of the course of events in a social system.”16 The second shift concerns the
widening of the issues covered by the security discourse, in our case of concern the economic and environmental dimensions which will be addressed separately.
Considerations of economic security were already part of our subfield of international relations. They have, however, also undergone a significant reconfiguration in terms of their approach and referent. State-centered and confrontational models of geo-economics were increasingly criticized as globalization saw the increasing interdependency of economies. Self-serving strategies in the international economic realm appeared to become the exception, and not the rule as economic security was increasingly understood as the security and resilience of the system as a whole17. In that sense, the 1990s echoed the earlier neoliberal considerations of Nye
and consorts18. A second—and co-dependent—significative change of this half-century in
terms of economic security is perhaps the incredible creation, accumulation and concentration of wealth it witnessed. According to the World Bank, global gross domestic product in current US dollars grew from 1,373 trillion in 1950 to 85.1 trillion in 201819. Starting from the late
1980s, the share of that wealth invested in the stock market grew to previously unprecedented amounts in advanced economies. In 1980, the median market cap to GDP ratio for these was around 0.2. In 2000, it averaged 1.20 This boom in capital markets and return rate further fueled
inequality21, and saw a near evangelical trust in the market as an all-powerful and efficient
14 Adam Crawford, “Networked Governance and the Post-Regulatory State?: Steering, Rowing and Anchoring
the Provision of Policing and Security,” Theoretical Criminology 10, no. 4 (November 2006): 449–79, https://doi.org/10.1177/1362480606068874.
15 Crawford, 468.
16 Scott Burris, Michael Kempa, and Clifford Shearing, “Changes in Governance: A Cross-Disciplinary Review
of Current Scholarship,” Akron Law Review, no. 1 (2008): 3.
17 Vincent Cable, “What Is International Economic Security?,” International Affairs 71, no. 2 (April 1, 1995):
305–24, https://doi.org/10.2307/2623436.
18 J. S. Nye, “Collective Economic Security,” International Affairs (Royal Institute of International Affairs
1944-) 50, no. 4 (19741944-): 584–98, https://doi.org/10.2307/2615925; Robert O. Keohane and Joseph S. Nye, “Power and Interdependence Revisited,” International Organization 41, no. 4 (ed 1987): 725–53,
https://doi.org/10.1017/S0020818300027661.
19 “GDP (Current US$) | Data,” accessed April 8, 2020,
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?name_desc=false.
20 Dmitry Kuvshinov and Kaspar Zimmermann, “The Big Bang: Stock Market Capitalization in the Long Run,”
SSRN Electronic Journal, 2018, https://doi.org/10.2139/ssrn.3236076.
21 Thomas Piketty, “About Capital in the Twenty-First Century,” American Economic Review 105, no. 5 (May
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mechanism guiding us towards never-ending progress in western thought. The price to pay, or so it appeared, was the staggering increase in volatility, which became the core issue for the disgruntled with globalization22. The confidence in markets as the instrument driving this
progress is conceptually linked to a third consideration of the changing economic security; that of the efficiency of the market. Despite this idea being formulated in some shape or form for centuries23, the efficient market hypothesis (EMH) was formalized by Eugene F. Fama in 1970
on the basis of the conditions of market equilibrium. The EMH posits in essence that the price of a product fully reflects the overall information set that exists on that product. Contrary to popular belief, Fama never argued that this hypothesis was strictly speaking true, instead that it was in spirit the best (and easiest) model on which to build assumptions for the long-term24.
Since then, the EMH has been, as Peters put it, “widely tested, [but] little believed” by economists25. But even if its proponents accept the restrictiveness of its assumptions, evidence
for its validity and the consequences of its strongest “random-walk” interpretation—that today’s change in price reflects today’s news and thus that it was impossible to predict them yesterday under equal information—remains the basis upon which the efficiency of markets is approached. In relation to our issue, the strongest interpretation of the EMH would argue that the information of a documented risk faced by an asset would be incorporated into a lower price for that asset, thus signaling the exposure to a new investor.
A last shift in the security approaches of concern for our thesis is that of the emergence, debate and governance of environmental issues. According to Smil, the millennium saw environmental security replace the threat of global nuclear warfare as the main source of angst in that both could have a global reach and devastating effects26. The main worry here is, of course, the
threats posed by climate change, which seats at the nexus of a number of traditional security domains27. This has resulted in a gradual but significant securitization—or construction as a
22 Miles Kahler, “Economic Security in an Era of Globalization: Definition and Provision,” The Pacific Review
17, no. 4 (January 2004): 485–502, https://doi.org/10.1080/0951274042000326032.
23 For a condensed history, see Martin Sewell, “History of the Efficient Market Hypothesis,” 2011, 14. 24 Sewell, 2.
25 Edgar E. Peters, Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market
Volatility (John Wiley & Sons, 1996), 13.
26 Vaclav Smill, “China’s Environment and Security: Simple Myth and Complex Realities,” SAIS Review 17, no.
1 (1997): 107–26; cited in J Barnett, “Security and Climate Change,” Global Environmental Change 13, no. 1 (April 2003): 7–17, https://doi.org/10.1016/S0959-3780(02)00080-8.
27 J Barnett, “Security and Climate Change,” Global Environmental Change 13, no. 1 (April 2003): 7–17,
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security matter by act of speech—of climate change since the 2000s28. However, this
development has been accompanied by an extensive academic debate on whether there is any value to gain from characterizing the environment through a security discourse, a controversy which actually predates the more recent interest for climate change29. Spearheading this
criticism is the movement which became known as the Copenhagen School. According to its proponents, the security discourse carries a conflictual prone frame of understanding30 which
could result in the motivation of Malthusian and zero-sum considerations wherein powerful subgroups would maneuver to thwart the risk that the survival of others represents on their group. These biopolitical considerations or the developmentalist assumptions which sometimes replace them to legitimate a non-industrious development path for the Global South are deeply rooted in the kinds of insurance-based propositions which effectively aim for the maintaining of the west way of life at the depends of others. To be clear, the issue at hand most probably fits in this movement, wherein the integrity of capital markets is to be protected from systemic disturbances. But some authors, such as Trombetta or Grove have also argued that the governance mode under which issues of environmental security have been addressed— congregating a number of NGOs and civil society actors—has seen the emergence of distinct, non-confrontational security logic31. That approaching climate change through the
environmental security prism does not necessarily restrict the discussion to climate-induced migration or resource scarcity endangering national security through the crippling of economies. With this overview of the main academic debates on our domains of interest, the next section focuses on the way these security issues are operationally approached in terms of risks.
2.2. Risk Society: Management and Commodification
This next section examines the more direct fashion in which the security domains at hand are approached by practitioners and academics, mainly through the differentiated notion of risk. First, the intellectual background behind the idea of risks is explored through the complex
28 Hans Günter Brauch and Georg Zundel, eds., Globalization and Environmental Challenges:
Reconceptualizing Security in the 21st Century, Hexagon Series on Human and Environmental Security and Peace, v. 3 (Berlin ; New York: Springer, 2008).
29 Kevin J. Grove, “Insuring ‘Our Common Future?’ Dangerous Climate Change and the Biopolitics of
Environmental Security,” Geopolitics 15, no. 3 (August 19, 2010): 536–63, https://doi.org/10.1080/14650040903501070.
30 Maria Julia Trombetta, “Environmental Security and Climate Change: Analysing the Discourse,” Cambridge
Review of International Affairs 21, no. 4 (December 2008): 585–602, https://doi.org/10.1080/09557570802452920.
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modernity and overload of information in which exceptional events become increasingly recurrent and defining. Then, the ways in which science and businesses have engaged, managed and commodified these risks in the emergence of a security and risk management industry is discussed. Finally, a closer focus on how and which risks emanating from climate change are threatening the economy and financial sector will be provided.
In his writing, Ulrich Beck, the father of the “Risk Society” notion argues that our second wave of industrialization sees the creation of immense wealth and risks, whose distribution is both unequal and independent from each other32. Risk is a proxy through which we organize reality
for computation; therefore its significance does not relate to the definition of that risk in itself, but to the vitality of the object on which this risk lies. That the risks of our chemical and nuclear plants have far outrun our capacity to compute and control them33. According to Beck, the risks
posed by our chemical and nuclear plant have far outrun our capacity to calculate or control them. Any effort offered by a merchant service in that sense would be pure obfuscation. This condemnation is, of course, directed to the practice of risk management, for which although “risks cannot be escaped, they can be managed” and diversified34. From the standpoint of an
organization, risks emanate from the connections of its components on the inside, and the external coupling to other systems. Security in that context, can be achieved through careful calculations of an organization parameters to achieve the social control of these interrelationships35. And despite the critics advanced by Beck, a lot of solutions claiming to
manage these risks are offered on the market, to reinsure managers and owners of the anxiety emanating from this risk society36. A number of scholars such as Taleb or Boin have lamented
alongside Beck on the increased vulnerabilities our society face despite evermore refined and potent mediation methods invented37. The main reason behind the bluntness of our tools lay
both with the standard assumptions of statistical analysis, and the immense noise of information in which we have to navigate38. Flage and Aven have for example related risks to known
32 Beck, Risk Society: Towards a New Modernity.
33 Mitchell Dean, “Risk and Reflexive Government,” in Governmentality: Power and Rule in Modern Society,
Second Edition 2010 (SAGE, 2010).
34 Edward Borodzicz, “Risk, Crisis and Security Management,” 2005, 10. 35 Borodzicz, 55.
36 Iain Wilkinson, Anxiety in a Risk Society (Psychology Press, 2001).
37 Taleb, Black Swan: The Impact of the Highly Improbable; Arjen Boin, “The New World of Crises and Crisis
Management: Implications for Policymaking and Research,” Review of Policy Research 26, no. 4 (2009): 367– 77, https://doi.org/10.1111/j.1541-1338.2009.00389.x.
38 “Radical Uncertainty, with Mervyn King, John Kay and Jesse Norman,” audio, Intelligence Squared, accessed
April 12, 2020, https://www.listennotes.com/podcasts/intelligence-squared/radical-uncertainty-with-jaCD07vlNpi/.
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unknowns resulting in our failure to accurately interpret the information behind what we measure39. This might seem counterintuitive to the scholar resting with confidence on bell curve
models, but all the while our complex world makes for more data and thus clearer regressions, more data also implies more and messier outcomes40. For those who integrate it, they now face
a new risk that is the—way too restrictive—margin of error of their projection, resulting in further anxiety and information overload. Indeed, a number of information studies have highlighted how agents, and especially in the context of the web 2.0 or economical decisions, can be overwhelmed by information41. This might be, furthermore, worrisome considering that
experimental studies have shown that perceived information overload are both associated with higher satisfaction and lower performance for decision makers42. With these ambiguities
highlighted, the industry which emerged to police these apparently unmanageable risks is then considered.
Beck used the image that our civilization lives on the edge of a volcano. And indeed, for some, the risk society has offered a fertile soil on which to grow businesses. In a 2007 article, Krahmann thus points out that Beck’s neglect for the role that businesses play in the effective management of risk leads him to ignore the current role they play in the “formation, continuation and institutional management of the risk society.”43 According to him businesses
have been central in the push to see “risks” replace the notion of “threats” in the 1990s, thus opening up a market for the continuous management of risks whose causes cannot be eradicated and necessitate continuous management44. This has resulted in commodification of risks,
wherein the pricing and creation of financial instruments allow for the isolation of the burden of the risk from its object, and its acquisition by those with the risk appetite necessary45. There
39 R. Flage and T. Aven, “Emerging Risk – Conceptual Definition and a Relation to Black Swan Type of
Events,” Reliability Engineering & System Safety 144 (December 1, 2015): 61–67, https://doi.org/10.1016/j.ress.2015.07.008.
40 Peters, Chaos and Order in the Capital Markets, 213.
41 James M. Sinkula, “Market Information Processing and Organizational Learning,” Journal of Marketing 58,
no. 1 (1994): 35–45, https://doi.org/10.2307/1252249; David Bawden and Lyn Robinson, “The Dark Side of Information: Overload, Anxiety and Other Paradoxes and Pathologies,” Journal of Information Science 35, no. 2 (April 1, 2009): 180–91, https://doi.org/10.1177/0165551508095781; David Bawden, Clive Holtham, and Nigel Courtney, “Perspectives on Information Overload,” Aslib Proceedings 51, no. 8 (January 1, 1999): 249–55, https://doi.org/10.1108/EUM0000000006984.
42 Charles A. O’Reilly, “Individuals and Information Overload in Organizations: Is More Necessarily Better?,”
The Academy of Management Journal 23, no. 4 (1980): 684–96, https://doi.org/10.2307/255556.
43 Elke Krahmann, “Risk Markets: The Commodification of Security and the Risk Society,” in 6th
Pan-European International Relations Conference (ECPR Standing Group on International Relations (SGIR), Turin, 2007), 19.
44 See also Olaf Corry, “Securitisation and ‘Riskification’: Second-Order Security and the Politics of Climate
Change,” Millennium: Journal of International Studies 40, no. 2 (January 2012): 235–58, https://doi.org/10.1177/0305829811419444.
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we see the junction of businesses and academics conducting research in that direction which is mentioned in Borodzicz’s use of ’market-led research.”46 See for examples the
recommendations put forth by Merkelbach and Daudin that risk management must see an obligatory integration into the processes of all organizations47. In such an environment, and in
conjunction with the economic and political conditions mentioned in the previous section, we witnessed the rise of the private security and risk management industry. Their representatives include the well-studied form of private guards or military contractors48 but also consultancy
and risk advisory agencies supplementing private as well as public actors in their decisions and activities49. These new businesses have raised a sizable level attention and criticism both from
the public and academic sphere. First, because these services are selling an idea of security, through limited proxies. Second, because this (re-) privatization of risks and security has some notable consequences. Krahmann famously developed in a 2008 article that depending on the exact services, the private provision of security can take the form of an excludable and, furthermore, rival good, which is different to when it is publicly provided50. Ericson et al. also
raised issues with the embedded moral hazard on the side of the provider in the private insurance business, with some negative takeaways for the neoliberal emphasis for the minimal state.51
With these considerations on the role played by businesses in the management of risks, the core risk studied in this thesis can be approached in a new perspective.
This section ends with a review of the different risks that climate change poses to businesses and, and how they connect to the financial sector. Climate change risks encompasses a wide variety of manifestations, and at various levels of the business chain, such as physical risks— direct damage resulting from climate hazard events—operational risks—disruptions on the value chain, logistics or market—perturbation on the macro environment or in the operations
46 Borodzicz, “Risk, Crisis and Security Management.”
47 Maarten Merkelbach and Pascal Daudin, “From Security Management to Risk Management,” 2011, 59. 48 Anthony Bergin, Donald Williams, and Christopher Dixon, “Safety in Numbers. Australia’s Private Security
Guard Force and Counterterrorism,” Paper (Barton, Australia: Australian Strategic Policy Institute, October 2018), https://www.asial.com.au/documents/item/1645; David Isenberg and International Institute for Peace and Conflict Research, Private Military Contractors and U.S. Grand Strategy (Oslo, Norway: International Peace Research Institute (PRIO), 2009); Adam Moore, “US Military Logistics Outsourcing and the Everywhere of War,” Territory, Politics, Governance 5, no. 1 (January 2, 2017): 5–27,
https://doi.org/10.1080/21622671.2016.1160837.
49 Conor O’Reilly, “The Transnational Security Consultancy Industry: A Case of State-Corporate Symbiosis,”
Theoretical Criminology 14, no. 2 (May 2010): 183–210, https://doi.org/10.1177/1362480609355702.
50 Elke Krahmann, “Security: Collective Good or Commodity?,” European Journal of International Relations
14, no. 3 (September 2008): 379–404, https://doi.org/10.1177/1354066108092304.
51 Richard Ericson, Dean Barry, and Aaron Doyle, “The Moral Hazards of Neo-Liberalism: Lessons from the
Private Insurance Industry,” Economy and Society 29, no. 4 (January 2000): 532–58, https://doi.org/10.1080/03085140050174778.
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of financial activities, etc. But also, transitional impacts such as those occasioned by the introduction of a new policy or stricter regulation, the emergence of new technologies or markets, etc. One thing to keep in mind is that these “risks” can also result in positive opportunities for the companies that are prepared, or lucky enough to profit from them. But what is common to both sides of the coin is that companies probably find it difficult to identify what will happen. Clapp et al. propose a typology of these climate change risks on businesses and the financial sector, accompanied with a framework for companies to try and identify some of these risks52. In a report for the Institute For Climate Economics and ClimINVEST, Hubert
et al., revisit this framework for the study of climate risk analysis in finance, and illustrate the framework of Clapp et al. for the propagation of climate risks to the financial sector through a diagram which is reproduced in Figure 1.
Figure 1. Propagation Channels of Climate Risks to the Real Economy and the Financial Sector, in Clapp et al., 2017
But, of course, the relation between climate risk and businesses or the financial sector is not a simple line, it is a loop as the impact of companies can direct the evolution of the climate crisis. As such, a number of academics and civil groups have been pressuring companies to adapt their
52 Christa Clapp et al., “Shades of Climate Risk” (Oslo: Cicero Climate Finance, February 2, 2017),
https://pub.cicero.oslo.no/cicero-xmlui/bitstream/handle/11250/2430660/Shades%20of%20Climate%20Risk%20nyformatting%20(Sistetil%20we b13%2002%202016).pdf?sequence=1.
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practices and prepare for the coming disruptions. Shrivastava et al.53, and Louche et al.54 are
part of this research agenda, presenting the impact of businesses on climate change and their liabilities, as well as the proposal of new managerial and financial models to integrate these long-term risks and avoid the current shortcomings. This kind of effort is deemed instrumental in the growing acknowledgement of climate change as a business risk, according to Pattberg55.
And indeed, there are a number of studies pointing to the increasing concerns and demands voiced by investors and financial actors to disclose and prepare for their exposure. Chenet for example, provides an overview of how the financial sector came to be concerned by climate change as a new source of financial risk and the approaches advanced to manage it56. But
companies and investors are not the only financial actors looking out for the impact of climate risks on the economy. Some central bankers such as Carney57 or Lagarde58 have been rather
vocal on the issue and asked for actions to be considered under their current mandate. On this subject, Campiglio et al. wrote an overview of the debate and the involvement of central banks in the transition to a sustainable economy through traditional or unconventional means59. 2.3. Empirical Studies on the Financial Account of Climate Risk Information
The last section of this chapter will review some of the empirical studies conducted on our fields of research: on risk perception, on the role of information in economic systems and decisions, and finally on the extent to which the financial sector accounts for climate risks.
Psychological and behavioral studies on the perception of risk have made great strides. However the mystery behind what makes us notice, remember and adapt to risks has yet to completely dissolve and especially when it comes to how it drives our choices. A mainstream assumption would be to think that risk attitude—whether one is in nature risk averse or
risk-53 Paul Shrivastava et al., “Finance and Management for the Anthropocene,” Organization & Environment 32,
no. 1 (March 1, 2019): 26–40, https://doi.org/10.1177/1086026619831451.
54 Celine Louche et al., “Financial Markets and the Transition to a Low-Carbon Economy: Challenging the
Dominant Logics,” Organization & Environment 32, no. 1 (March 1, 2019): 3–17, https://doi.org/10.1177/1086026619831516.
55 Philipp Pattberg, “How Climate Change Became a Business Risk: Analyzing Nonstate Agency in Global
Climate Politics,” Environment and Planning C: Government and Policy 30, no. 4 (August 2012): 613–26, https://doi.org/10.1068/c1179.
56 Hugues Chenet, “Climate Change and Financial Risk,” SSRN Electronic Journal, 2019, 7,
https://doi.org/10.2139/ssrn.3407940.
57 Mark Carney, “Breaking the Tragedy of the Horizon – Climate Change and Financial Stability” (City Dinner
2015, Llyod’s of London: Bank of England, 2015), 16; Mark Carney, “A New Horizon” (Speech, A global approach to sustainable finance, European Commission Conference, Maech 2019).
58 Lagarde, “Climate Change and the Financial Sector.”
59 Emanuele Campiglio et al., “Climate Change Challenges for Central Banks and Financial Regulators,” Nature
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seeking—is a simple variable from which to predict the extent to which an individual will incorporate risks in his or her decisions. However, and especially in consideration of economic decisions relating to one’s wealth, it has been shown that risk perception is a much better predictor than risk attitude when it comes that incorporation60. As Sjöberg put it “risk perception
is a phenomenon in search of an explanation.”61 A list of common factors thought to influence
an individual’s perception of risk will often include the exposure to information, eventually through the media, or “availability” heuristic. Another, a far too often disregarded factor is the actual level of threat. For example, the average estimation of mortality rates for varied accidents and illnesses have been shown to have a strong relation to statistical data62. However, and in
confirmation of more recent studies, Sjöberg has shown that these factors only enjoy a weak explanatory power when it comes to predicting the perception of risk63. A third proposition, the
psychometric model, was, on the other hand, able to explain up to 40% of the results. The psychometric model, somehow contradictory to mainstream approaches of risk perception, is not based on measurements of the “perception” process. Instead, it gathers a number of scales for the hazard’s properties such as the number of people exposed, or the newness of the hazard, etc64. But this should not lead us to assume that information is carefully processed in making
that decision. Indeed, Lo and Repin have conducted a study supporting the importance of emotion in the decision-making process of professional securities traders65. The authors,
however, warn that although this finding maybe surprising to practitioners convinced of the “rationality” of the market, there is not necessarily a contradiction there. Indeed, expert judgment has been shown to be more intuitive and emotional than rational, as information is processed all together in one operation which said expert find difficult to decompose afterwards. That finding is consistent with another study by Slovic et al. which will be discussed later in this section.
60 Thomas Dohmen et al., “Individual Risk Attitudes: Measurement, Determinants, and Behavioral
Consequences,” Journal of the European Economic Association 9, no. 3 (June 1, 2011): 522–50, https://doi.org/10.1111/j.1542-4774.2011.01015.x; Elke U Weber, “The Role of Risk Perception in Risk Management Decisions:,” 2004, 25.
61 Lennart Sjöberg, “Factors in Risk Perception,” Risk Analysis 20, no. 1 (2000): 1,
https://doi.org/10.1111/0272-4332.00001.
62 Sjöberg, 2. 63 Sjöberg, 3. 64 Sjöberg, 4.
65 Andrew W. Lo and Dmitry V. Repin, “The Psychophysiology of Real-Time Financial Risk Processing,”
Journal of Cognitive Neuroscience 14, no. 3 (April 1, 2002): 323–39, https://doi.org/10.1162/089892902317361877.
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On the studies concerned with the Efficient Market Hypothesis, Peters was right in saying that it was “widely tested, little believed.”66 The majority of them are focused on the macro and
systemic level, trying to evaluate the point to which the overall market is efficient. There is, of course, the original demonstration collected by Fama for his seminal article introducing the formalized EMH. He found extensive evidence in support of the efficient market model and scarce evidence of the contrary67. Nonetheless, he mainly presented these findings as
justification for further research to test the validity of this hypothesis rather than strict evidence of its definitive power. Three decades later, Malkiel summarized the main critics raised against the EMH68. His judgment of the critics was that they definitely met the grounds for
justifications, and that recent market history with the 87 crash and the dot-com bubble constituted evidence that market often err. Nevertheless, in his mind, the EMH remained the most robust and efficient assumption under which to build models. Another avenue of research on that idea concerns the use of non-traditional information—i.e. the kind of non-economic data often excluded from a company’s report card—to explain profits. Raju and Roy have studied this issue by a negative approach, looking at the extent to which market information is comparatively more useful in the prediction of a firm profit depending on its size and industry characteristics. They found that market information is most useful to predict profits for large firms in competitive industries, but that the industry size had little effect on the value of the information. For an analysis conducted at the micro-level of the issue, one can refer to the seminal study of Slovic et al69. Back in 1972, they presented an experimental design to
quantitatively describe the use of information in investment decision and obtained some encouraging results with the very limited sample size they tested conducted their experiment on. Although the process leading to an investment decision has probably and significantly evolved for all levels of financial actors since then, this breakthrough design still deserves close attention for its methods.
Finally, mention should be made of the empirical works measuring the extent to which climate risks are accounted for by financial actors. Firstly, research focusing on the effect of disclosure on stock performance is discussed, then quantitative studies looking at the reaction to directly
66 Peters, Chaos and Order in the Capital Markets, 13.
67 Eugene F. Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” The Journal of
Finance 25, no. 2 (May 1970): 383–417.
68 Burton G. Malkiel, “The Efficient Market Hypothesis and Its Critics,” Journal of Economic Perspectives 17,
no. 1 (2003): 59–82.
69 Paul Slovic, Dan Fleissner, and W. Scott Bauman, “Analyzing the Use of Information in Investment Decision
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observed climate risks on the part of investors, and lastly on more qualitative attempts to explain how financial actors approach the issue. There are a number of studies into the positive relation between the public disclosure of general economic data and stock returns or firm value70.
Therefore, advocates for the use of finance in the transition towards a more sustainable economy have been pushing for the disclosure of climate exposure by companies for investors to account for. Indeed, different studies such as those conducted by Engle et al.71 on the hedging
of negative climate news, or that of Liesen72 on carbon emitting European companies, show
that so-called climate resilient portfolios generate abnormally superior risk-adjusted returns. Some might see it as an encouraging sign that markets can adapt to climate information following traditional profit seeking strategies. Others, of course, can interpret these findings in a negative light, and consider that investors currently don’t account for these risks despite the information being already rather easily accessible. This systemic reading is also in line with findings of studies conducted on perhaps simpler models of risks and market. For example, Hong et al. have shown that the price of food stocks fails to account for the risk of droughts in regions and thus higher costs of grain where higher temperatures (associated with a higher risk of droughts) are recorded in the previous year. A substantive interpretation of that finding is that, here again, stock prices underreact to climate change risks and fail to see the effective connection between climate risks and lower profits for these companies. Now onto more granular studies on the reaction of financial actors. To some extent contra to the previous findings, professional fund managers have been shown to overreact to acute weather events such as hurricanes and other climatic disasters in the short term when these events happen in the neighborhood of where their operations are based, compared to more remote funds73. These
misestimates are costly for their bottom line and are consistent with the heuristic and bias models of risk perception previously discussed. This, of course, questions the general assumption that finance actors perceive risk in the same fashion as the general public, for whom it appears that psychometric—and ironically more rational—models offer a better prediction of risk perception74. But such financial approach should not be too quickly labeled as less rational
70 For one example, see Yawen Jiao, “Corporate Disclosure, Market Valuation, and Firm Performance,”
Financial Management 40, no. 3 (2011): 647–76, https://doi.org/10.1111/j.1755-053X.2011.01156.x.
71 Robert F. III Engle et al., “Hedging Climate Change News,” NBER Working Paper (National Bureau of
Economic Research, April 2019).
72 Andrea Liesen, “Climate Change and Financial Market Efficiency,” Business & Society 54, no. 4 (July 1,
2015): 511–39, https://doi.org/10.1177/0007650314558392.
73 Olivier Dessaint and Adrien Matray, “Do Managers Overreact to Salient Risks?,” November 2015, 70;
Shashwat Alok, Nitin Kumar, and Russ Wermers, “Do Fund Managers Misestimate Climatic Disaster Risk,” The Review of Financial Studies 33, no. 3 (March 1, 2020): 1146–83, https://doi.org/10.1093/rfs/hhz143.
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in this fashion. Christophers has developed in a qualitative study of the investment community’s approach to the risk associated with holding fossil fuel positions that investors are playing a shorter game75. His conclusion is that institutions will continue to hold these positions at risk
of physical or transitional climate risks for as long as they are indicated as profitable by traditional economic measurements. The idea is simple: those who leave the party early make the investment more interesting in terms of cost versus returns of acquiring these positions for those who dare to hold them just a little longer. Therefore, and according to Christophers, industry leaders are right to expect a high volatility in the next years for these sectors and worry about a massive and painful transition when things become dire.
With this understanding of the state of research in terms of the development and logic of a marketized management of climate risks, this thesis carries on to the exposition of the methods used to answer its research question.
75 Brett Christophers, “Environmental Beta or How Institutional Investors Think about Climate Change and
Fossil Fuel Risk,” Annals of the American Association of Geographers 109, no. 3 (May 4, 2019): 754–74, https://doi.org/10.1080/24694452.2018.1489213.
20 Chapter 3: Research Design and Methodology
This study makes use of an experimental design. Evidence of the market inefficiency to account for climate risks has been gathered quantitatively at the macro and micro level, but a direct and empirical understanding of the extent to which investors weigh these risks is still lacking. Such measurement is further hindered by the difficulty to isolate the phenomena of climate risk perception and accounting from other market determinants in the decision process. For these reasons, the simulation of the investment decision process is proposed through the use of experimental methods.
The use of this sort of design has been steadily increasing in the field of social sciences for the last decades76. Although it is widely used in psychology researches—and to a lesser extent in
behavioral economics studies—its use in the field of crisis and security management is only burgeoning. In addition, if it has been applied to the study of climate risk perception and the support for policies77, it has yet to be used to weigh the impact of this risk perception on
economic decisions. This thesis will to test the dominant assumption that information of climate risks, if made available to investors, will be accounted for in their investment decisions. To realize this, the present study aims to measure the effect of the information of the climate risks relating to an asset has on investors’ valuation of that asset. This is achieved through an experimental study with the randomized distribution of subjects into the different control and treatment groups, with the aim of isolating the effect of climate risk perception. The proposed experiment is, of course, an extremely simplified version of what goes into a normal investment decision process at a financial institution. People familiar with these processes might protest that what we measure in a vacuum greatly differs from the real thing. To be clear, this research sets out to explore, in detail, the theoretical assumption that investor will discount climate risks, and examining this at the same level of abstraction as the principle guiding the trend of policies pursuing disclosure efforts. As such, this study does not intend to produce insights to be directly transposable to the world of practice. Indeed, one could argue that, whatever the results obtained, investors could be trained to value and process climate risk information in a different manner. Therefore, the aim of this study shall rather be to explore the opportunity for the use of strict experimental models, in helping us think and evaluate constructed models of our reality
76 Druckman et al., Cambridge Handbook of Experimental Political Science, 3.
77 Stefan Drews and Jeroen C. J. M. van den Bergh, “What Explains Public Support for Climate Policies? A
Review of Empirical and Experimental Studies,” Climate Policy 16, no. 7 (October 2, 2016): 855–76, https://doi.org/10.1080/14693062.2015.1058240.
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at the level at which people, all people, actually perceive them. In short, experimental designs allow for the controlled collection of precise measurements78, and can be used to precisely
investigate general claims at the level of abstraction in which we envision them when considering policy action. As such, the general approach taken by this study on the question of how close to come to the real kind of information used by investors versus how approachable and simplified will be the following: as much as it is necessary to maintain a semi-plausible simulation for non-finance educated subjects to project into, but as little as possible so that they do not get lost in the level of detail otherwise common in this kind of process.
The precise technique used to measure the effect of climate risk in the valuation of assets is the survey experiment technique, which is commonly used to determine the perception or opinion of subjects on certain themes with the possibility to derive causal explanations with traditionally significant generalization prospects79. The fact that subjects carry their preconception of the
subject based on their past experiences or heuristic assumptions should not be thought of as necessarily disrupting to our process80, as it allows us to identify possible explanatory variables
for the variance in climate risk perception, and its inclusion in the investment decision process. More precisely, the way this study intends to conduct the survey experiment is through the use of vignettes in order to formulate non-abstract questions while distancing the respondent from his or her own experience through a hypothetical situation81.
The research question of this thesis is: To what extent do economic agents account for information of climate risks in their investment decisions?
This question has been broken down into two sub questions. The first is simply concerned with the description of the general effect that climate risk information has on investment decisions and can be formulated as the following:
Sub Question 1: what is the effect of the information of an asset’s exposure to climate risks
has on an investor’s valuation of that asset?
78 Rose McDermott, “Experimental Methods in Political Science,” Annual Review of Political Science 5, no. 1
(2002): 39, https://doi.org/10.1146/annurev.polisci.5.091001.170657.
79 Kevin J. Mullinix et al., “The Generalizability of Survey Experiments,” Journal of Experimental Political
Science 2, no. 2 (2015): 109, https://doi.org/10.1017/XPS.2015.19.
80 Janet Finch, “The Vignette Technique in Survey Research,” Sociology 21, no. 1 (February 1, 1987): 111,
https://doi.org/10.1177/0038038587021001008.
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Based on the previous review of the body of knowledge on the role of information in investment decision, it has been established that the Efficient Market Hypothesis is considered as the dominant model. The assumption behind the EMH is that, under conditions of perfect competition, all available information on an asset will be summarized through the aggregation of investors’ valuations of that asset82. If investors are assumed to be risk averse, the rational
course of action would then be for them to value assets they know to be at risk lower. The corresponding hypothesis for the first sub question is:
H1: an investors’ valuation of assets (DV1) will increase or decrease upon receiving
information of these assets’ potential exposure to climate risks set to potentially affect it positively or negatively (IV).
The second sub question addressed in our research focuses on the adaptation of investors’ choice of investment based on the information of climate risks related to certain assets. The assumption tested there is the one behind the disclosure and grading efforts of climate exposure championed by industry leaders: that investors will move capital away from at-risk position into more sustainable ones.
Sub Question 2: to what extent do investors with available information of assets’ exposure to
climate risks move capital away from at-risk assets toward safer ones?
Based on the same assumptions as the first sub question and on the discourse of industry leaders, the hypothesis to be tested for that second sub question is:
H2: investors with information of certain assets’ exposure to climate risk (IV) will tend to
allocate relatively less capital to at risk positions, and more toward ones that are safe or will benefit from climate change (DV2).
3.1. Research Design
These hypotheses will be tested in the following fashion: the respondent will be introduced to the experience as a simulation of investment exercise, in which they are tasked to allocate capital for a client into different investment opportunities in a fictional country—
Countryland—based on the regional economic context.
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The subjects are then randomly assigned to one of two groups: the control and treatment group. Subjects in the treatment group will then be assigned a description of the regional context to read mentioning various qualitative information on the type of industries and geographic implantation of the company in the fictitious country, as well as a mention of the climate risks in Countryland. Subjects in the control group will be submitted to a similar description of the
Countryland context, minus the mention of climate risks.
Based on the information received, subjects in both groups will be asked to grade the attractiveness for investment of five fictional companies active in different sectors. Depending on their sector of activity—say, a coastal hotel on the seafront—subjects might infer that they are more at risk of the climate risks mentioned in their assigned description and adapt their grade accordingly. Difference in mean grades between control and treatment groups should thus serve to test our first hypothesis.
Following this initial questionnaire, the subjects of each group will be asked to recommend the composition of a portfolio of investment in the considered companies. The relative attractiveness of companies at risk of climate risk compared to safer ones between treatment and control groups will inform us on the answer to our second hypothesis.
The diagram below (Diagram 1) shows the basic structure of the survey experiment and the level at which each hypothesis is tested.
24 3.2. Selection of the Population and Data Collection
This study intends to study the risk perception and integration of climate risks in the decision of investors. One definition of that population would be professional investors such as the ones describing in our experiment or someone with a finance or economic background. However, this poses the question of the accessibility and engagement of that demographic, since approaching finance professionals for a survey experiment would most probably necessitate resources and a level of access that is not in line with what is at our disposal for this research. Furthermore, this study being of an abstract nature and using significantly simplified elements compared to what professionals would use to navigate investment decision, there is reason to assume convincing them to take part in the experiment would prove difficult. Since this thesis does not aim to provide a definitive answer on the matter, but rather to explore the potential of experimental methods on this challenging subject of security management through the market, the definition of an “investor” will be expanded include any potential subject in our convenience sample. The population sample of investors for this study will include responses from adults of all ages, background, education or financial means, or convenience sample. This means that subjects could include individuals with a very limited or biased understanding of finance which would be unrepresentative of the professional investor population83. However,
and in continuation of our previous point that cabdrivers’ projections are just as good as the ones of experts—except that these latter are considerably worse at estimating their error rate84—
studies have revealed that very similar results can be obtained between population-based and convenience samples85. Nonetheless, demographic and characteristics of the sample will be
collected and reported to inform our findings.
In terms of reach, this study has no reason to limit its studied population to a particular region or nationality, instead attempting to cast a large net and capture a global perspective. However, and due to the collection processes at our disposal, one should assume that our convenience sample will be mainly populated by young, west-European students. The experiment will be conducted in English in order to appeal to the broadest pool of subjects without engaging in the translation of the experiment.
83 McDermott, “Experimental Methods in Political Science,” 37.
84 “Radical Uncertainty, with Mervyn King, John Kay and Jesse Norman”; Taleb, Black Swan: The Impact of the
Highly Improbable.
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The survey experiment will be carried online using Qualtrics for its randomizing options as well as the ease of data export to statistical software. Qualtrics also allows for simple collection processes, as subjects can take part in the study following a simple internet link from whatever device they use. The use of online surveys lowers the costs of conduction both for the researcher in terms of resources, and for the respondent through the ease of participation. However, it comes at the sacrifice of a lesser control over the internal validity of the experiment, as there is no way to attest that the subjects fit the description that they will give of themselves or that they take part in a controlled environment. Alternatively, this last point could reinforce the external validity of the research as it allows for easier participation and diminishes the experimental bias carried by the researcher86.
The collection was conducted between May 13 and June 14, 2020. Access to the survey was distributed through social media, on Facebook and Instagram. First, through my own connections and profile on these platforms (about a hundred, or 39.37% of our sample). But also in groups of students, some of them conducting survey-based research as well (the remaining 60.63% of our sample). Ultimately, the simple design of the survey as well as its ludic presentation as a simulation elicited interest and participation. Furthermore, and on the basis of previous CSM theses using surveys, no rewarding schemes rewarding subjects were proposed as they were not reported to be cost efficient to the researcher in order to collect sufficient data.
3.3. Operationalization and Scale Measurement
For our first sub question, the respondent’s valuation of each company as an interesting investment is measured using a 7 item, Likert-like scale,1 meaning that this company should absolutely not be considered for investment and 7 that this company should absolutely be considered for investment. Since the subjects will be asked to rate the companies one by one, and without knowing that they will then have to make a relative selection, this should allow for the collection of their risk-adjusted valuation of each company in relative isolation to the others. Each of the 5 companies is active in an industry set to be positively or negatively affected by climate change. These industries and the expected impact of climate change on their business is next shortly discussed, starting from those set to benefit from climate change, to those whose business is the most at risk of climate change.
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The industry set to see the most significant rise in demand due to climate change in our experiment is the air conditioning businesses. This is, of course, quite paradoxical, considering the significant contribution of their energy consumption and cooling gases on greenhouse-gas emission. But researches have shown that demand for air conditioning units has been increasingly rising in Asia since the turn of the century, and especially so after warmer years— even when correcting for rises in income87. As such, the global number of equipped air
conditioners may rise from 1.6 billion today to 5.6 billion in 205088. And this might be
especially salient in southern, developing countries with a low percentage of adoption at the moment89.
Another industry set to benefit from climate change through a rise in demand is the manufacturing of bottled water. Extreme temperature events have been shown to cause an augmentation in sales, even in down seasons such as autumn of up to 18%90. But even while
setting preparation and relief efforts during extreme weather events, one study has highlighted the sector’s solid potential for growth91, assuming that manufacturing can maintain the capacity
for production.
To represent industries which are not expected to see a significant benefit or negative impact from climate change, we selected a supermarket chain. On the one hand, these businesses will face disruptions in their supply chains—ASDA UK disclosed that up to 95% of their fresh produces are already at risk of climate change92—but on the other they are already experts at
monitoring and managing such risks. In fact, this capacity, and their position of power breakers between consumers and producers allows them to select and push for more resilient and sustainable supply chains. Which they choose to pursue themselves for the business case that
87 Maximilian Auffhammer, “Cooling China: The Weather Dependence of Air Conditioner Adoption,” Frontiers
of Economics in China 9, no. 1 (January 1, 2014): 70–84, https://doi.org/10.3868/s060-003-014-0005-5.
88 IEA, “The Future of Cooling – Analysis” (Paris: IEA, 2018),
https://www.iea.org/reports/the-future-of-cooling.
89 Sarah Wesseler, “Rising Demand for Air Conditioning Could Make Climate Change Even Worse,” Yale
Climate Connections (blog), June 3, 2019, https://www.yaleclimateconnections.org/2019/06/rising-demand-for-air-conditioning-could-make-climate-change-even-worse/.
90 Intergovernmental Panel on Climate Change Working Group 2 Impacts et al., Climate Change 2007 - Impacts,
Adaptation and Vulnerability: Working Group II Contribution to the Fourth Assessment Report of the IPCC (Cambridge University Press, 2007), 362.
91 S. Mirasgedis et al., “The Impact of Climate Change on the Pattern of Demand for Bottled Water and
Non-Alcoholic Beverages,” Business Strategy and the Environment 23, no. 4 (2014): 287, https://doi.org/10.1002/bse.1782.
92 Jo Confino, “Asda: 95% of Our Fresh Produce Is Already at Risk from Climate Change,” The Guardian, April
25, 2014, sec. Guardian Sustainable Business, http://www.theguardian.com/sustainable-business/asda-food-waste-risk-climate-change.
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is the need to pander to new consumers’ expectations towards climate93, but nonetheless
insulating their bottom line in the process.
For an example of industries set to experience some challenges to their production capacity due to climate change, we selected an agribusiness harvesting wild fruits. The yield of such company is directly affected by seasonal climate and extreme weather events, with little opportunity for remediation. As such, and despite wild crops being a keystone for biodiversity, studies show that 16 to 22% of these kinds of strains could become extinct by 2055 due to climate change, while the remaining are set to lose on average 50% of their populations94.
Which is why such a company is expected to be negatively impacted by climate change.
Finally, to represent an industry set to experience significant losses due to climate change, we selected a hospitality company operating coastal resorts for tourists. Although there is no conclusive evidence to say that tourism in the absolute sense will be negatively impacted by climate change, international tourism is set to experience a net drop in the experience of climate perturbations95. Furthermore, the assets held by such company, namely coastline settlements
and infrastructure are at risk of undergoing major damage due to rising sea level and extreme weather events96. For both of these reasons, we expect this company to be the most at risk of
climate change in our experimental set.
The subjects of this study will rate the extent to which they believe these companies to be attractive for investment, based on a short description of said companies and the local context. Subjects in the treatment group will receive a description of the local context mentioning climate risks, while subjects from the treatment group will receive a description omitting these risks but otherwise identical. By comparing the mean attractiveness ratings between our treatment and control group, we aim to measure the extent to which subjects with access to information of climate risks perceived these risks and engaged in meaning-making projections which affected their impressions of the five companies.
93 Andy Gouldson and Rory Sullivan, “Understanding the Governance of Corporations: An Examination of the
Factors Shaping UK Supermarket Strategies on Climate Change,” Environment and Planning A: Economy and Space 46, no. 12 (December 1, 2014): 2972–90, https://doi.org/10.1068/a130134p.
94 Andy Jarvis, Annie Lane, and Robert J. Hijmans, “The Effect of Climate Change on Crop Wild Relatives,”
Agriculture, Ecosystems & Environment, International Agricultural Research and Climate Change: A Focus on Tropical Systems, 126, no. 1 (June 1, 2008): 13–23, https://doi.org/10.1016/j.agee.2008.01.013.
95 Bas Amelung, Krzysztof Blazejczyk, and Andreas Matzarakis, Climate Change and Tourism: Assessment and
Coping Strategies, 2007.
96 Susanne Becken, “Climate Change Impacts on Coastal Tourism,” CoastAdapt Impact Sheet (Gold Coast:
National Climate Change Adaptation Research Facility, 2016), 8,
