How Do Demographics and Climate Change Influence the Decisions of Financial Market Actors?

Professor Susan Thorp from the University of Sydney gave the first keynote speech titled “Ageing and Complex Financial Decision Making”. Using data from Australia, she showed that retirees are reluctant to decumulate their wealth and almost never choose to annuitize voluntarily. Thorp identified the desire to maintain a comfortable lifestyle, bequest motives, and the fear of significant medical expenses as possible reasons for this behaviour. She summarised three main explanations for why decumulation is so difficult for the elderly: timing (the decline in cognitive abilities and financial knowledge with age), input (biased expectations and lack of pension knowledge), and complexity (due to the challenging nature of decumulation decisions). Thorp’s research shows that more guidance on decumulation is needed.

Professor David Robinson from the Fuqua School of Business, Duke University, delivered his keynote speech on how climate forecast revisions affect household portfolio choice. Based on Swedish survey panel data, he showed that greater geographical proximity to extreme weather shocks is associated with revisions in individuals’ beliefs about climate change, which in turn affect their portfolio holdings. He also found that gender and financial literacy play a role in this relationship. However, he also showed that the resulting shift in portfolio allocation is insufficient to significantly reduce the cost of capital for sustainable versus less sustainable firms, mainly because of political polarisation.

On the second day of the conference, Professor Steven Ongena from the University of Zurich talked about “Banking, Demographics, and Climate” in his keynote speech. Through an analysis of data on firm loan application and bankers’ preferences from a mid-sized bank in China, he showed that customer managers with pro-environmental values tend to give more favourable recommendations for the loan applications of so-called green firms, while in a second step, loan officers – who are the managers’ superiors – with non-sustainable preferences tend to reject managers’ recommendations for sustainable applications. Ongena’s work highlights the importance of bankers’ biospheric values in banks’ lending decisions when green firms apply for loans.